Calculating SaaS Churn and Customer Lifetime Value Metrics Published Jul 21, 2026 in SaaS & Web App Integrations.

For subscription-based software-as-a-service (SaaS) companies, customer retention is the ultimate driver of compound growth. Unlike transactional retail models, SaaS businesses rely on ongoing relationships where the cost of customer acquisition (CAC) is paid back over months or years of service.

Calculating Customer Churn Rate

Churn rate measures the percentage of subscribers who cancel their subscription within a given period. It is computed as:

Churn Rate = (Canceled Customers during Period / Active Customers at Start of Period) * 100

A low churn rate is critical. Even a seemingly minor 5% monthly churn means that over half of your customer base leaves within a single year, requiring significant acquisition marketing just to keep revenue flat.

The Equation for Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV) estimates the total net revenue a single customer will generate before churning. It is derived by dividing average revenue per user (ARPU) by user churn rate:

LTV = ARPU / Churn Rate

To evaluate if a SaaS model is healthy, finance teams track the ratio of LTV to CAC. A healthy business should maintain an LTV:CAC ratio of at least 3:1, indicating that customers generate three times more value than the cost required to acquire them.