Lifetime Value of Customer In the situation where there is no expansion revenue expected over the lifetime of a customer, you can use this simple formula: which can also be expressed as follows: Once again if ARPA is monthly, the churn rate should be monthly. To truly get an accurate picture of LTV, you should take into consideration Gross Margin. i.e. However in most SaaS businesses, the gross margin % is high (above 80%), and it’s quite common to use the simpler version of the formula that is not Gross Margin adjusted. Ron Gill, NetSuite: I’m surprised at how often I see a SaaS product architected in a way that means they’ll never clear a decent gross margin. Including GM in the calc is a great way for you to see there is a big lever on LTV/CAC that is worth focusing on. For NetSuite, we’ve not only calculated LTV/COCA, but also calculated r-squared of each of the components (to see what has driven improvement) and sensitivity analysis on them (to see what might drive it in the future). GM is an important component. - www.forentrepreneurs.com