Customer Lifetime Value (CLV) Simulator
Stress-test customer lifetime value against changes in churn, margin, and retention assumptions.
Worked Examples
Example 1: SaaS Unit Economics Analysis
Problem:A B2B SaaS company has: $200 ARPU, 75% gross margin, 3% monthly churn, $600 CAC, and 5% monthly expansion. Calculate LTV, LTV:CAC, payback, and net retention.
Solution:Step 1: Calculate Simple LTV\nLTV = (ARPU × Margin) / Churn\nLTV = ($200 × 0.75) / 0.03\nLTV = $150 / 0.03 = $5,000\n\nStep 2: Account for Expansion\nNet Churn = Gross Churn - Expansion = 3% - 5% = -2%\nNegative net churn means cohorts grow!\nAdjusted LTV using 60-month cap: ~$9,000+\n\nStep 3: Calculate LTV:CAC\nLTV:CAC = $5,000 / $600 = 8.3:1\nWith expansion: ~15:1 ✓ Excellent\n\nStep 4: Calculate Payback\nMonthly Contribution = $200 × 0.75 = $150\nPayback = $600 / $150 = 4 months ✓ Excellent\n\nStep 5: Net Revenue Retention\nNRR = (1 - 0.03 + 0.05)^12 = 1.02^12 = 127%\n\nConclusion: Outstanding unit economics with negative net churn.
Result:$5,000+ LTV | 8.3:1 LTV:CAC | 4-month payback | 127% NRR | Excellent metrics
Example 2: E-commerce Subscription Box
Problem:Subscription box: $35 ARPU, 40% gross margin, 8% monthly churn, $45 CAC. Is this business viable? What improvements are needed?
Solution:Current State Analysis:\n\nLTV = ($35 × 0.40) / 0.08\nLTV = $14 / 0.08 = $175\n\nLTV:CAC = $175 / $45 = 3.9:1 ✓ Acceptable\n\nPayback = $45 / $14 = 3.2 months ✓ Good\n\nAverage Lifetime = 1 / 0.08 = 12.5 months\n\nAssessment: Viable but thin margins. High churn limits LTV.\n\nImprovement Scenarios:\n\n1. Reduce churn to 5%:\n LTV = $14 / 0.05 = $280\n LTV:CAC = 6.2:1 (+59% improvement)\n\n2. Increase ARPU to $45 (premium tier):\n LTV = ($45 × 0.40) / 0.08 = $225\n LTV:CAC = 5.0:1 (+28% improvement)\n\n3. Improve margin to 50% (better sourcing):\n LTV = ($35 × 0.50) / 0.08 = $219\n LTV:CAC = 4.9:1 (+26% improvement)\n\nRecommendation: Focus on churn reduction first—highest leverage.
Result:$175 LTV | 3.9:1 LTV:CAC viable | Churn reduction to 5% adds $105 LTV (+60%)
Example 3: Comparing Customer Segments
Problem:A software company has two segments: SMB ($50 ARPU, 7% churn, $100 CAC) and Enterprise ($500 ARPU, 2% churn, $2,000 CAC). Both at 80% margin. Which segment deserves more investment?
Solution:SMB Segment:\nLTV = ($50 × 0.80) / 0.07 = $571\nLTV:CAC = $571 / $100 = 5.7:1\nPayback = $100 / $40 = 2.5 months\nAvg Lifetime = 14 months\n\nEnterprise Segment:\nLTV = ($500 × 0.80) / 0.02 = $20,000\nLTV:CAC = $20,000 / $2,000 = 10:1\nPayback = $2,000 / $400 = 5 months\nAvg Lifetime = 50 months\n\nComparison:\n- Enterprise LTV is 35x higher ($20K vs $571)\n- Enterprise LTV:CAC is 1.75x better (10:1 vs 5.7:1)\n- Enterprise payback is 2x longer but still healthy\n- Enterprise lifetime is 3.5x longer\n\nUnit Economics Winner: Enterprise\n\nBut consider:\n- Enterprise sales cycle is longer\n- SMB is self-serve, more scalable\n- Enterprise concentration risk\n\nRecommendation: Enterprise for profitability, SMB for scalable growth. Optimal: Land SMB, expand to Enterprise.
Result:Enterprise: $20K LTV, 10:1 ratio | SMB: $571 LTV, 5.7:1 ratio | Enterprise wins on economics, SMB on scalability
Frequently Asked Questions
What is Customer Lifetime Value (CLV/LTV)?
CLV is the total profit a customer generates over their entire relationship with your business. It combines average revenue, profit margin, and customer lifespan. Understanding CLV helps determine how much to invest in acquisition and retention.
How is customer lifetime value (CLV) calculated?
Simple CLV = Average Purchase Value * Purchase Frequency * Customer Lifespan. For subscription models: CLV = Average Monthly Revenue per Customer / Monthly Churn Rate. For example, if a customer pays 50 dollars/month and your monthly churn is 5%, CLV = 50/0.05 = 1,000 dollars. CLV should be at least 3 times your customer acquisition cost.
How do I calculate customer acquisition cost (CAC)?
CAC = Total Sales and Marketing Expenses / Number of New Customers Acquired in that period. Include all related costs: advertising, salaries, tools, commissions, and overhead. CAC payback period = CAC / Monthly Gross Margin per Customer. A payback period under 12 months is generally healthy for SaaS businesses.