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How to calculate customer lifetime value (LTV)

A simple margin-adjusted LTV is average revenue per customer per period times gross margin, divided by the churn rate for the same period.

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The formula

LTV = ARPU × gross margin ÷ churn rate. Revenue LTV = ARPU ÷ churn rate.

Step by step

  1. Find ARPU for one period (often a month).
  2. Find gross margin as a fraction.
  3. Find churn for the same period.
  4. Apply the formula.

Worked example

ARPU 100 a month, 80% margin, 2% monthly churn

  • 100 × 0.80 = 80 gross profit a month
  • 80 ÷ 0.02 = 4,000

Margin-adjusted LTV is 4,000.

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Free Calculator. (n.d.). How to calculate customer lifetime value (LTV). https://freecalculator.tech/guides/how-to-calculate-customer-lifetime-value

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