Customer Lifetime Value (LTV) Calculator
Estimates the gross margin a customer brings in before they leave.
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The formula
LTV = ARPA × gross margin ÷ churn average lifetime = 1 ÷ churn
One divided by churn gives the average lifetime. Keep ARPA and churn on the same basis, both monthly here. Future revenue is not discounted.
What to watch out for
Use churn measured over enough customers and months to be stable. With a young product or few customers, one or two cancellations can move LTV a long way, so try a range of churn figures.
Frequently Asked Questions
How do I calculate LTV?
Multiply ARPA by gross margin and divide by churn. 50 a month at 80% margin and 3% monthly churn gives 1,333.33.
How much does churn change LTV?
A lot, since it is the divisor. At 2% churn the same customer is worth 2,000.00, and at 5% it is 800.00.
What if churn is zero?
There is no finite answer, because the formula divides by zero. It usually means too little history rather than customers who never leave, so use an estimate or cap the lifetime.