Customer Lifetime Value Calculator Formula

Understand the math behind the customer lifetime value calculator. Each variable explained with a worked example.

Use the Customer Lifetime Value Calculator

Formulas Used

Avg Customer Lifespan

avg_lifespan_months = churn_rate > 0 ? 1 / (churn_rate / 100) : 0

Lifetime Revenue

ltv_revenue = churn_rate > 0 ? avg_revenue / (churn_rate / 100) : 0

Customer Lifetime Value (LTV)

ltv = churn_rate > 0 ? avg_revenue * (gross_margin_pct / 100) / (churn_rate / 100) : 0

Variables

VariableDescriptionDefault
avg_revenueAvg Monthly Revenue Per Customer(USD)50
gross_margin_pctGross Margin(%)70
churn_rateMonthly Churn Rate(%)3

How It Works

How to Calculate Customer Lifetime Value

Formula

LTV = ARPU x Gross Margin / Monthly Churn Rate

Where:

  • ARPU = Average Revenue Per User (monthly)
  • Gross Margin = percentage of revenue that is gross profit
  • Churn Rate = percentage of customers lost per month

    • Average customer lifespan in months = 1 / Monthly Churn Rate. LTV multiplies lifetime revenue by gross margin to get the profit contribution.

    Worked Example

    A subscription business with $50/month ARPU, 70% gross margin, and 3% monthly churn.

    avg_revenue = 50gross_margin_pct = 70churn_rate = 3
    1. 01Average lifespan = 1 / 0.03 = 33.3 months
    2. 02Lifetime revenue = $50 x 33.3 = $1,666.67
    3. 03LTV = $50 x 0.70 / 0.03 = $1,166.67

    Ready to run the numbers?

    Open Customer Lifetime Value Calculator