Lifetime Value is the predicted amount a customer will spend on your product or service throughout the entire relationship, hence – “lifetime.” This metric can help you move from transaction-based thinking to focusing on the long-term value of repeat business.
Last updated: October 2026.
To calculate LTV you need three inputs: churn rate, the share of subscribers who stop paying in a period; average revenue per user (ARPU), or MRR divided by total users; and average margin per user (AMPU), which is ARPU minus COGS and service costs.
1. Churn rate: This is the number of subscribers that unsubscribed or stopped paying in a given period of time.
Example: If you had 100 subscribers last year and lost 5, your churn rate is 5%.
2. Average Revenue Per User (ARPU): This is the average revenue of all your current accounts. Or, MRR/total users.
Example: If you have 100 accounts, and from 50 of them you made $50 per year, and from the other 50 you made $100 per year, then your ARPU is $75 yearly.
3. Average Margin Per User (AMPU*):* This is the average amount of profit you receive from each account. You should subtract cost of goods sold (COGS) and account management and customer service expenses from your ARPU.
Example: Let’s say you’ve calculated that your ARPU minus expenses equals average margin per customer (AMPU) of 80%.
Lifetime value equals ARPU multiplied by profit per user, divided by churn rate. Using the example figures, 80% of a $75 ARPU nets $60 per subscriber, and dividing that by a 5% churn rate gives an LTV of $1,200.
The simple formula for Lifetime Value looks like this:
(ARPU x Profit Per User)/Churn Rate
The first thing you to know is the average amount you’re profiting per customer. To calculate this with the example numbers above, find 80% of your ARPU which is $75. So, on a $75 subscriber, you’d net $60.
Next, find the lifetime value by factoring in the churn rate of 5%.
Lifetime Value = ($75 x 80%)/5%
Lifetime Value = $1,200
Quite often, churn can be messy. For example, if you think about any given cohort (a group of users that subscribed in a given period – i.e., all subscribers gained in July 2017), there’s often a “cliff,” right after the first month of that cohort’s start date.
To keep this churn variance accounted for, we can multiply our results by a discount rate. (Discount rate means “discounting” for cash flow losses that may occur in the future).
Use a discount rate of .75 to find a more conservative estimate:
((ARPU x Profit Per User)/Churn rate) x .75
$1200 x .75 = $900
Sample size is also important, and unfortunately, the scientific method often falls by the wayside in business. If you don’t have many users, or you’re counting too few users in your metric calculations, then your data may not be scientifically valid. Here are the scientific guidelines for sample size:
Lifetime Value is an important metric, especially when matched with Customer Acquisition Costs (CAC). If you know how much a customer’s value will be over the course of a lifetime, then you can make smarter decisions about what to spend to acquire a customer. A good rule of thumb is that if LTV/CAC isn’t above 3, you’re spending too much on acquisition.
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Lifetime value (LTV) is the predicted amount a customer will spend on your product or service over the entire relationship. It helps you move from transaction-based thinking to focusing on the long-term value of repeat business, and it is most useful when matched with customer acquisition cost (CAC).
The simple LTV formula is (ARPU × profit per user) ÷ churn rate. With an ARPU of $75, an 80% average margin per user and a 5% churn rate, LTV = ($75 × 80%) ÷ 5% = $1,200, and multiplying by a discount rate of .75 gives a more conservative estimate of $900.
A good rule of thumb is that LTV divided by CAC should be above 3, because a lower ratio means you are spending too much on acquisition. Knowing how much a customer will be worth over a lifetime helps you make smarter decisions about what to spend to acquire one.
Churn is often messy: many cohorts show a cliff right after their first month, so a simple LTV can overstate value. To account for this churn variance, multiply your result by a discount rate, such as .75, for a more conservative estimate; in the example, that turns $1,200 into $900.
Sample size matters because counting too few users can make your LTV calculation scientifically invalid. With fewer than 100 users, count 50% or more of user data, ideally 100%; between 1,000 and 10,000 users, count 10%; and above 1 million users, count 1%.