Estimate the gross profit a customer generates over their whole relationship with the business.
Expected lifetime is the reciprocal of the churn rate, so 2% monthly churn implies a 50-month life. Multiplying by gross profit rather than revenue is what makes LTV comparable with acquisition cost, and the discounted variant accounts for cash arriving years out. LTV computed on revenue rather than gross profit overstates the value of a customer by the whole cost of serving them, which is how unprofitable growth gets funded.
Customer Lifetime Value
LTV = average revenue × gross margin ÷ monthly churn rate
LTV = average revenue × gross margin ÷ monthly churn rate Expected lifetime is the reciprocal of the churn rate, so 2% monthly churn implies a 50-month life. Multiplying by gross profit rather than revenue is what makes LTV comparable with acquisition cost, and the discounted variant accounts for cash arriving years out.
LTV computed on revenue rather than gross profit overstates the value of a customer by the whole cost of serving them, which is how unprofitable growth gets funded.
This calculator takes 4 inputs: Average revenue per customer per month, Gross margin, Monthly churn rate, Annual discount rate. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.