Customer Lifetime Value Calculator

The formula this calculator uses

LTV = ARPU x gross margin / churn

ARPU

Average revenue per user per month — here 50

Gross margin

Share of that revenue kept after the direct cost of serving the customer — here 70 per cent

Churn

Share of customers lost each month — here 4 per cent, whose reciprocal is the lifetime

LTV

Contribution over the whole relationship — here 875.0

How to check the result by hand

1. 1

   Fix the ARPU for the cohort

   Use the average monthly revenue per customer, not the headline plan price. In the reference case this is 50 a month. If customers on different plans behave differently, compute the ARPU for the cohort you are measuring rather than blending the whole book.

2. 2

   Apply the gross margin to reach contribution

   Multiply ARPU by the gross margin to get the monthly contribution. Here 50 x 0.70 = 35.0. This step is what keeps the figure honest: revenue the business does not keep cannot repay acquisition cost, so the margin must come from your own accounts rather than from an industry average.

3. 3

   Turn churn into an average lifetime

   Divide one by the monthly churn rate expressed as a decimal. At 4 per cent that is 1 / 0.04 = 25.0 months. The reciprocal, not a subtraction, is the correct conversion, and the churn rate must match the period of the ARPU.

4. 4

   Multiply contribution by lifetime

   Multiply the 35.0 monthly contribution by the 25.0-month lifetime to reach a lifetime value of 875.0. Keeping the two components separate makes it obvious which lever to pull: a retention gain lengthens the lifetime, while a price or margin gain raises the contribution.

5. 5

   Divide by CAC and read the ratio

   Divide lifetime value by the customer acquisition cost. Against a CAC of 250 the ratio is 3.5, comfortably above the 3 to 1 floor but not far above it. Report the ratio and the absolute figures together, because a healthy ratio on a tiny lifetime value still leaves little room for error.