SaaS LTV math is slightly different from ecommerce subscription LTV because SaaS revenue often grows within an account — seat additions, plan upgrades, feature expansions — while ecommerce subscription revenue is mostly stable per cycle. The core formulas overlap, but the levers and complications diverge.
The SaaS LTV formulas
Three increasingly precise versions:
- Simple: LTV = ARPU ÷ Monthly Logo Churn. $100/month per account, 3% monthly churn = $3,333 LTV.
- Margin-adjusted: LTV = (ARPU × Gross Margin) ÷ Churn. SaaS margins are usually high (70–90%), so this version is closer to the simple one than in ecommerce.
- NRR-adjusted: LTV = ARPU ÷ (Churn Rate − Net Expansion Rate). This captures the fact that healthy SaaS accounts grow over time. If net revenue retention is 110%, expansion offsets some churn and LTV is higher than the simple formula suggests.
What's different about SaaS LTV
- Expansion revenue matters. A customer who starts at $50/month and grows to $200/month over 18 months has a very different LTV from one who stays at $50. SaaS LTV calculations should factor in expansion.
- Logo churn vs. revenue churn. Logo churn (customers lost) and revenue churn (dollars lost) can diverge significantly when expansion is strong. Track both.
- Contract length matters. Annual contracts have lower churn than monthly because customers can't cancel mid-term. Mixing contract types in one LTV calculation usually distorts it.
- Cohort behavior is more variable. SaaS cohorts can have wildly different LTV based on company size, industry, or product-market fit — averaging usually misleads.
SaaS LTV benchmarks
Healthy LTV:CAC for SaaS is the same 3:1 benchmark as ecommerce subscription. Beyond that, the absolute numbers vary:
- SMB SaaS: LTV $1,000–$10,000, CAC $200–$1,500.
- Mid-market SaaS: LTV $10,000–$100,000, CAC $5,000–$25,000.
- Enterprise SaaS: LTV $100,000+, CAC $25,000+ (often much more).
Payback period matters too: SMB SaaS should pay back CAC in 12 to 18 months; enterprise in 18 to 30 months.
Why this matters for Joy Subscriptions readers
Most readers here are ecommerce subscription operators, not SaaS founders. But many Shopify subscription apps (including Joy) are SaaS businesses themselves — and understanding SaaS LTV helps merchants evaluate which subscription apps are healthy enough to invest in long-term. See customer lifetime value for the underlying concept.