Compute LTV as (ARPU × gross margin%) ÷ monthly churn%.
Overview
Customer lifetime value (LTV) estimates how much gross profit a subscriber contributes over their expected life.
This model uses LTV = (monthly ARPU × gross margin fraction) ÷ monthly churn fraction—an approximation popular for SaaS planning.
If churn is very low, LTV rises quickly; validate churn quality before spending up to LTV on acquisition.
Steps
Average monthly revenue per customer.
Contribution margin on that revenue.
Average monthly logo or revenue churn.
Review LTV.
Aim for a healthy LTV:CAC ratio.
Math
LTV = (ARPU × grossMargin%/100) / (churn%/100)
Margin-adjusted monthly ARPU divided by monthly churn rate approximates lifetime gross profit.
Worked cases
(55×0.7)/0.03 ≈ $1,283
About $1,283 LTV.
38.5/0.02 = $1,925
About $1,925 LTV.
27.5/0.03 ≈ $917
About $917 LTV.
Why use this
Questions