How to Calculate LTV

Customer Lifetime Value (LTV) represents the total net profit a business can expect to earn from a single customer throughout their entire relationship. Unlike transaction-based metrics, LTV shifts the focus from short-term wins to long-term sustainability. It is calculated by multiplying the average purchase value by the purchase frequency and then multiplying that by the average customer lifespan. In subscription models, it is often simplified to ARPU divided by Churn. For growth teams, LTV is the ‘North Star’ that determines how much can be spent on acquisition (CAC) while remaining profitable. A healthy LTV indicates deep product-market fit and effective retention strategies. If LTV is stagnating, it suggests that customers either don’t find enough recurring value or that the pricing model is not aligned with the value delivered. Mastering LTV allows businesses to forecast future cash flows and justify aggressive expansion spend to investors.

Worked example

The calculator opens on a SaaS account paying $50 a month at an 80% gross margin, losing 5% of customers each month.

Margin-adjusted revenue per user is $50 x 0.80 = $40. Dividing by 5% monthly churn implies an average customer lifetime of 20 months, and an LTV of $800.

Two consequences fall out of that arithmetic. Churn sits in the denominator, so halving it to 2.5% doubles LTV to $1,600 without touching price. And because the formula applies gross margin first, the result is profit rather than revenue: the same $50 ARPU at a 40% margin yields an LTV of $400.

LTV or e-commerce CLV?

There are two lifetime-value calculators here because subscription and transactional businesses derive the figure differently.

This page uses (ARPU x Margin) / Churn. It never asks how long a customer stays, because the churn rate already implies it – 5% monthly churn is a 20-month average lifespan. That inference only holds where revenue recurs on a fixed cycle.

The e-commerce CLV calculator uses AOV x Frequency x Lifespan. Purchases there arrive irregularly, so lifespan has to be supplied directly rather than inferred, and the output is gross revenue rather than margin-adjusted profit.

Use this page if you bill on a subscription and can quote a churn rate. Use the e-commerce version if customers buy at unpredictable intervals and you track them by order value and repeat rate.