LTV formula for solo SaaS founders

Summary

LTV estimates how much revenue you get from a typical customer over time. The basic formula is average revenue per user divided by churn rate.

LTV (lifetime value) is how much revenue you expect from a typical customer before they leave. It is a model, not a fact. Use it to compare pricing, channels, and payback time.

The basic formula

LTV = ARPU ÷ monthly churn rate

ARPU is average revenue per user per month (MRR ÷ paying customers). Monthly churn rate is a decimal (5% churn = 0.05).

Worked example

50 customers, $2,500 MRR → ARPU = $50/month. Gross churn averages 4%/month (0.04). 

LTV = $50 ÷ 0.04 = $1,250

Rough read: each customer is worth about $1,250 in subscription revenue over their life, given current churn.

Gross margin version

If you know margin on subscription revenue:

LTV = (ARPU × gross margin %) ÷ monthly churn rate

Hosting and support costs matter for profitability. Revenue LTV alone overstates what you keep.

Limits

  • Churn is not constant forever. Early customers behave differently than later ones.
  • Annual plans change cash timing but ARPU still drives the model.
  • Do not treat LTV as precise. Use it to compare options, not as a bank balance.

Compare LTV to churn and MRR weekly. If LTV drops while you spend more on ads, acquisition may be out of balance.