Most of the time when people say "LTV," they mean average LTV — a single number summarizing what a typical customer is worth. It's a useful benchmark, but it hides as much as it reveals. The average customer often doesn't exist; what you actually have is a distribution of customers, some very valuable and some marginal. Knowing both the average and the shape of the distribution is what unlocks better decisions.
How to calculate average LTV for a subscription business
The simplest formula:
Avg LTV = ARPU ÷ Monthly Churn Rate
If your average revenue per user per month is $30 and 5% of subscribers cancel each month, the average subscriber stays 20 months and is worth $600. This works because, on average, the inverse of monthly churn is average tenure in months.
A more conservative version uses gross margin instead of revenue (Avg LTV = ARPU × Gross Margin ÷ Churn Rate), giving you the profit each customer generates rather than the top-line revenue.
Where the average misleads
- Heavy tails. If 10% of subscribers stay 5+ years and 60% cancel in the first 90 days, the average tells you neither story. Look at the distribution.
- Cohort drift. Customers acquired last year may behave differently from those acquired today. Mixing them into a single average obscures real changes.
- Plan mix. A $100/month tier subscriber averaged with a $20/month tier subscriber produces a misleading midpoint.
Always cut the average by cohort, by plan, and by acquisition channel. The patterns there are where the real decisions live.
What "good" average LTV looks like
There is no universal benchmark — only good LTV relative to CAC. The standard healthy ratio is LTV ≥ 3× CAC. A $600 average LTV is excellent if CAC is $100, mediocre if CAC is $300, and unsustainable if CAC is $500. Category norms vary widely: supplements and coffee tend to land $200–800, premium curation boxes $400–1500, simple replenishment $100–400.
How to raise average LTV
- Reduce churn. Even a small drop in monthly churn compounds heavily — going from 6% to 5% lifts average tenure from 17 months to 20.
- Raise AOV. Bundles, build-a-box, one-time add-ons — each dollar added to per-cycle revenue multiplies across every renewal. See AOV.
- Shorten frequency. Where customers will accept it, more frequent cycles compress more revenue into the same tenure.
- Win back lapsed customers. A reactivated subscriber extends effective tenure, lifting the cohort's average.