The simplest and most widely used LTV formula for subscription businesses derives directly from the monthly churn rate.
The Basic LTV Formula
For constant monthly churn:
Average Customer Lifetime = 1 ÷ Monthly Churn Rate (in months)
LTV = Monthly Revenue per Customer × Average Customer Lifetime
Or combined: LTV = Monthly Revenue ÷ Monthly Churn Rate
Examples:
| Monthly Churn | Average Lifetime | At $99/mo ARPU | LTV |
|---|---|---|---|
| 1% | 100 months (8.3 years) | $99 | $9,900 |
| 2% | 50 months (4.2 years) | $99 | $4,950 |
| 5% | 20 months (1.7 years) | $99 | $1,980 |
| 10% | 10 months (0.8 years) | $99 | $990 |
Margin-Adjusted LTV
For the LTV:CAC comparison, use gross margin-adjusted LTV:
LTV (margin-adjusted) = Monthly Revenue × Gross Margin % ÷ Monthly Churn Rate
At $99/month, 75% gross margin, 2% monthly churn: LTV = $99 × 0.75 ÷ 0.02 = $3,712.50
Investors use margin-adjusted LTV because you can only reinvest the margin, not the total revenue.
When the Formula Breaks Down
The constant-churn formula has three simplifying assumptions:
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Constant churn: In reality, cohorts often have higher early churn (months 1–3) and lower later churn. The actual LTV is higher than the formula suggests for sticky products.
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No expansion revenue: If customers upgrade over time, the formula understates LTV. Use average revenue per account trend to adjust.
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Discrete time: The formula uses monthly periods; more accurate models use continuous time (e^−churn_rate × t) for instantaneous rates.
For most planning purposes, the simple formula is accurate enough. The margins of error (±20%) are smaller than the uncertainty in any other LTV input.
Calculate your LTV scenarios at the Churn Cohort Calculator.