Customer Lifetime Value (LTV) Calculator
Example: Average revenue per customer / month: 50 $ · Gross margin: 80 % · Monthly churn rate: 5 %
| Lifetime value (gross profit) | $800 |
| Average customer lifespan | 20 |
| Lifetime revenue | $1,000 |
Worked example
A customer paying $50 a month at an 80% gross margin who churns at 5% a month lives, on average, 1 divided by 0.05 = 20 months. Over that time they generate $50 x 20 = $1,000 of revenue, and at 80% margin the lifetime value is $800 of gross profit. Cut churn to 2.5% and the average lifespan doubles to 40 months, pushing LTV to $1,600 from the exact same customer.
Frequently asked questions
Why use gross margin instead of revenue?
Because revenue is not profit. LTV should reflect the profit a customer contributes, so we multiply their lifetime revenue by your gross margin. Comparing a margin-based LTV to acquisition cost gives a true picture of profitability.
How does churn drive lifespan?
Average lifespan is one divided by the monthly churn rate. A 5% churn means an average of 20 months; a 2% churn means 50 months. Small reductions in churn produce large gains in LTV, which is why retention is so valuable.
What churn rate should I use?
Use your actual measured monthly churn: customers lost in a month divided by customers at the start of the month. If you do not have it yet, model a range to see how sensitive your LTV is to retention.
How do I use LTV?
Compare it to your customer acquisition cost. A healthy business keeps LTV at least three times CAC and recovers CAC within about a year. Our LTV:CAC ratio tool makes that comparison directly.