Customer Lifetime Value (LTV)
What is LTV?
LTV is customer lifetime value, the estimated revenue value of a customer over their lifespan.
LTV is an estimate whose usefulness depends on the model behind it. This site’s simple calculator estimates lifetime subscription revenue from monthly account revenue and monthly customer churn. It is a starting point for sensitivity analysis; a young business with little retention history should avoid treating the result as an observed customer lifetime.
Also known as: CLV, Customer Lifetime Value, Lifetime Value
Formula
LTV = ARPA × (1 / CHURN) | Variable | Meaning |
|---|---|
ARPA | Average revenue per account. |
CHURN | Customer churn rate. |
How to use it
- Use monthly ARPA and monthly customer churn from a comparable customer segment. Enter 2 for a 2% churn rate in the calculator.
- Divide ARPA by churn expressed as a decimal. For a gross profit view, multiply that revenue estimate by the segment’s gross margin.
- Recalculate with less favorable churn and margin assumptions. Compare the range with actual cumulative revenue or gross profit from older customer cohorts.
Worked example
Hypothetical worked scenario
A fictional service earns $500 per account per month, loses 2% of accounts monthly, and has an 80% gross margin. Acquisition costs $6,000 per account.
Revenue LTV = $500 ÷ 0.02 = $25,000. Gross profit LTV = $25,000 × 0.80 = $20,000. Gross profit LTV/CAC ≈ 3.33×.
If monthly churn rises to 4%, the same model produces $12,500 revenue LTV and $10,000 gross profit LTV. The acquisition decision changes even though price and CAC are unchanged.
Calculate with your numbers
LTV = ARPA × (1 / CHURN) | Variable | Meaning |
|---|---|
ARPA | Average revenue per account. |
CHURN | Customer churn rate. |
Worked example
- ARPA (monthly)
- $500
- Monthly Churn
- 2%
- → LTV
- $25,000
Enable JavaScript to use the interactive calculator.
Open the LTV calculator for a focused view of the inputs.
What the result tells you
The large sensitivity to churn is a reason to examine retention by cohort. If older customers behave differently from new ones, one constant churn rate loses information. For planning, show the model, measurement window, and conservative scenario next to the headline estimate.
Assumptions and common mistakes
- This simple formula assumes stable revenue and a constant churn probability, and does not discount future cash flows.
- At zero observed churn the model cannot estimate a finite lifetime. A short period with no cancellations does not prove an infinite lifetime.
- Keep revenue LTV and gross profit LTV clearly labeled, especially when comparing an LTV/CAC ratio with an external benchmark.
Check how your team defines LTV against these rules.
Compare related measures
Frequently asked questions
Does the calculator include gross margin?
No. It returns a revenue-based estimate. Multiply that output by your gross margin as a decimal to obtain the simplified gross profit estimate used in the scenario.
Can I use negative revenue churn?
No. This model uses customer churn probability. Expansion and negative net revenue churn require a revenue cohort model; they cannot be substituted into the denominator.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- Stripe: Customer lifetime value
Lifetime value methods and the role of gross margin.
Found an error or a definition that differs from your reporting? Send a correction with the page URL and the method you use.