Marketing
Lifetime value from ARPU, margin and churn
Divide the monthly contribution by the monthly churn rate. The margin keeps only the revenue the business actually keeps, and the churn rate converts into an average lifetime.
The Formula
LTV = (ARPU x gross margin) / churn
Divide the monthly contribution by the monthly churn rate. The margin keeps only the revenue the business actually keeps, and the churn rate converts into an average lifetime.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| ARPU | Average revenue per user per month | currency per month | Here 50. Use a cohort average, not the headline plan price. |
| Gross margin | Share of revenue left after the direct cost of serving the customer | percent | Here 70 per cent, entered as 70 and divided by 100 inside the calculation. |
| Monthly churn | Share of customers lost each month | percent | Here 4 per cent. Its reciprocal is the average lifetime, 25.0 months. |
What Each Symbol Means
ARPUcurrency per month
Average revenue per user per month
Here 50. Use a cohort average, not the headline plan price.
Gross marginpercent
Share of revenue left after the direct cost of serving the customer
Here 70 per cent, entered as 70 and divided by 100 inside the calculation.
Monthly churnpercent
Share of customers lost each month
Here 4 per cent. Its reciprocal is the average lifetime, 25.0 months.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate customer lifetime value page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Customer Lifetime Value, filed under Business. Every number the guide produces comes from substituting into this one line.