Formula
average lifetime = 1 / monthly churn rate LTV = ARPA × gross margin × average lifetime
Customer lifetime value
Also known as LTV, CLV
Customer lifetime value is the total gross profit a business expects from one customer across the whole relationship.
Worked example
€210 a month at 80 percent gross margin with 3 percent churn gives an average lifetime of 33 months and an LTV of about €5,544.
Churn does the heavy lifting. At 3 percent monthly churn the average customer stays about 33 months; at 6 percent it is 17. Halving churn does more for lifetime value than almost any price rise.
Use gross margin rather than revenue. Counting the full subscription price ignores hosting, support and payment fees, and produces a number that justifies spending the business cannot afford.
Related terms
Keep this number live
Plainhub computes customer lifetime value from money you record in plain words, so it is current when you need it rather than the night before a board meeting.
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