Pricing and billing
Customer lifetime value calculator
Work out what a customer is worth in profit rather than in revenue, and set it against what it cost to win them.
Free, no accountIn your browser
What a typical customer bills each month, before your cost of goods.
The share of that revenue left after what you pay the vendor.
A percentage of customers, per month: 3 means three in every hundred leave this month.
Sales and marketing spend, divided by the customers it actually won.
Result
$1,050.00 of profit per customer, over 33.3 months
$31.50 of profit a month at a 35.0% margin, against $150.00 to win the customer.
- Info
A customer is worth $1,050.00 in profit, not $3,000.00 in revenue
At 3.0% of customers lost a month, a customer stays 33.3 months. That is $3,000.00 of billing, but only $31.50 a month of it is yours at a 35.0% margin, so the lifetime value you can actually spend is $1,050.00. The $1,950.00 between the two figures is what you owe the vendor.
- Info
The churn rate here is the one you typed
Nothing in this answer is measured. This page has no view of your customer base, so it cannot count who left last month - the lifetime below is derived entirely from the rate in the field, and it is worth going back to your own invoices to check that rate before quoting the result to anyone.
- Info
It takes 4.8 months to pay back what a customer cost to win
At $31.50 of profit a month, the $150.00 spent winning a customer is covered after 4.8 months. Until then the customer is cash you have already spent, which is the figure to watch when acquisition is paid for in advance and the revenue arrives monthly.
What a customer is worth
- ARPU
- $90.00
- Gross margin
- 35.0%
- Monthly profit
- $31.50
- Average lifetime
- 33.3 months
- Revenue LTV
- $3,000.00
- Profit LTV
- $1,050.00
Against what it costs to win one
- Acquisition cost
- $150.00
- Profit LTV to acquisition cost
- 7.0×
- Payback
- 4.8 months
At a few other churn rates
| Customers lost each month | Average lifetime | Profit LTV |
|---|---|---|
| 0.5% | 200.0 months | $6,300.00 |
| 1.0% | 100.0 months | $3,150.00 |
| 2.0% | 50.0 months | $1,575.00 |
| 3.0% | 33.3 months | $1,050.00 |
| 5.0% | 20.0 months | $630.00 |
| 10.0% | 10.0 months | $315.00 |
The same revenue and the same margin at every row: only the churn rate moves.
- The churn rate is typed into this page, not measured from anything: no ResellerHQ account is read, so this has no idea how many of your customers left last month.
- Revenue, margin and churn are held constant for the whole of a customer’s life here. In practice a vendor raises its wholesale price, a customer negotiates, and the ones who stay longest churn at a lower rate than the ones who just arrived.
- Expansion is ignored. A customer who adds seats or buys a second product every year is worth more than this figure, and the gap is largest for exactly the customers you most want to keep.
- Nothing here is discounted to present value, so profit arriving in year six counts the same as profit arriving this month. A long lifetime flatters the total more than it should.
What this is
Every other customer lifetime value calculator hands back a revenue figure - monthly billing divided by churn - which for a reseller buying at wholesale overstates what a customer is worth by the entire cost of goods. This one applies the margin first, so the number you get is the profit a customer is worth, which is the only version you can set against what it cost to win them.
Lifetime value is what one customer is worth from the day they arrive to the day they leave. The length of that life comes from the churn rate: lose three customers in a hundred each month and the average customer stays a hundred divided by three, which is a little over thirty-three months.
On a revenue basis that lifetime is billing, and billing is not yours. A reseller on a thirty-five per cent margin keeps thirty-five cents of every dollar and sends the rest to the vendor, so the revenue figure is nearly three times the profit figure. Set a revenue LTV against an acquisition cost and the deal looks comfortable when it is not.
Pricing what you resell: cost, markup and margin (/blog/pricing-what-you-resell-cost-markup-and-margin) puts this revenue-versus-profit gap next to the rest of a reseller’s pricing arithmetic - one sale’s margin, break-even, seat planning and MRR/ARR - since a lifetime value figure that ignores margin is the kind of mistake that only shows up a year later.
How to read the result
Read the two LTV rows together. The gap between them is your cost of goods over a customer’s whole life, and it is the number that disappears when a SaaS lifetime value template is used unmodified by a business that resells somebody else’s product.
The payback row is the one to watch if acquisition is paid for up front: it says how many months of a customer’s profit it takes to get back what winning them cost. The table beside it moves only the churn rate, because a point or two of churn shifts the lifetime value further than most price changes can.
Common mistakes
What goes wrong most often, and how to tell.
- Using a revenue LTV when you resell somebody else’s productA software vendor selling its own product keeps nearly all of its revenue, so revenue and profit lifetime value are close enough to be used interchangeably. A reseller keeps the margin, and nothing else, so the two figures are a multiple apart - the revenue one is the number that makes an unprofitable acquisition channel look fine for a year.
- Entering an annual churn rate in a monthly fieldA rate of thirty, meant as thirty per cent a year, is read here as thirty per cent a month and cuts the average lifetime from forty months to three. If your churn is only measured annually, divide it by twelve for a rough monthly figure before entering it, and expect the result to be approximate.
- Treating the lifetime value as cash you can spend nowThe figure is the whole of a customer’s future profit, arriving a month at a time over years. It is not available today, nothing here discounts it to what it is worth today, and spending against it is how an acquisition budget runs ahead of the cash that is meant to fund it.
- Assuming churn stays flat for the whole lifeNew customers leave at a much higher rate than ones who have been billing for two years, so a single flat rate understates the long-term customers and overstates the new ones. The answer here is an average over a cohort, not a prediction about any one account.
Questions
What people ask about this tool.
- Divide one hundred by the monthly churn percentage to get the average lifetime in months, then multiply that by what one customer is worth each month. Use the monthly profit rather than the monthly revenue and the answer is a figure you can compare against acquisition cost.
- Gross profit, if you resell at a margin. Revenue counts money that is contractually the vendor’s, which inflates the result by the cost of goods - on a thirty-five per cent margin, a revenue LTV is nearly three times the profit a customer will actually leave behind.
- Three to one is the figure most often quoted, on profit rather than revenue, but it is a convention rather than a rule. What matters more for a small reseller is the payback period, because that is what decides whether the next acquisition can be funded out of the last one.
- No. This page cannot see your customers, your invoices or your cancellations, so every figure in the answer comes from the four fields on it. The churn rate in particular is a number you have to work out yourself and check before acting on the result.
Use it from the API
The same check, as one request.