There are at least five common CLV formulas, and arguments about which one is "right" are mostly arguments about what question you're answering. For a Shopify subscription business, three of them cover almost every real-world use case.
The simple subscription CLV formula
CLV = ARPU ÷ Monthly Churn Rate
ARPU is average revenue per user per month. Churn rate is the percentage of subscribers who cancel each month. The math: if 5% of customers cancel each month, the average tenure is 1 ÷ 0.05 = 20 months. Multiply by $30/month ARPU and you get $600 average CLV.
Best for: quick benchmarking, comparing to CAC, monthly health checks.
The margin-adjusted CLV formula
CLV = (ARPU × Gross Margin) ÷ Monthly Churn Rate
Same as the simple formula, but multiplied by gross margin. If your product costs 40% of revenue to fulfill, your gross margin is 60% and your $600 CLV becomes $360 in gross profit per customer.
Best for: deciding whether to retain low-margin customers, setting acquisition budgets that need to cover fulfillment.
The cohort-based CLV formula
Track a real cohort over time and observe their actual cumulative revenue:
CLV = Σ (Revenue per cohort, month by month, until decay flattens)
You wait — usually 12 to 24 months — and sum what each cohort actually generated. This is the most accurate version but the slowest to produce.
Best for: validating that your formula-based CLV matches reality, modeling future cohorts based on historical curves.
When formulas disagree
If your simple formula says $600 but cohort data says $450, the cohort is right and your churn calculation is probably understating reality (often because dunning failures aren't being counted as churn, or because the customer base skews toward early-tenure subscribers). When formulas disagree, trust observed cohorts over modeled formulas.
What the formulas don't capture
- Discount rate. A dollar earned 18 months from now is worth less than a dollar earned today. Discounted CLV formulas (NPV-based) matter for finance modeling, less so for day-to-day marketing decisions.
- Referral value. A subscriber who refers two friends has lifetime value beyond their own spend. Most formulas ignore this; treat referrals as a separate bonus.
- Reactivation. Churned customers who come back extend their effective lifespan. Cohort formulas pick this up; simple formulas don't.
For most subscription stores, the simple formula is enough for daily decisions, the margin formula is enough for budget setting, and cohort data is the periodic sanity check. See CLV calculation for the broader method.