How to calculate LTV for a subscription business
For one-time-purchase stores, LTV is complex — you have to estimate repeat-purchase probability. For subscriptions, the math is more tractable because the relationship is contractual: the customer renews until they cancel.
The simplest formula:
LTV = ARPU × (1 ÷ Monthly Churn Rate)
Where ARPU is average revenue per user per month, and churn rate is the percentage of subscribers who cancel each month. If you charge $30/month and 5% of subscribers cancel each month, the average customer stays 20 months and is worth $600.
Why LTV matters more than first-order value
Subscription businesses look unprofitable on day one of every customer — you spent CAC, you have not yet collected enough revenue to clear it. The model only works because you keep collecting revenue over months or years. LTV is the metric that justifies CAC. Without it, growth spend looks irrational.
It also reframes operational decisions. Should you invest in better onboarding? An LTV lens says yes if onboarding improvements raise retention even slightly — the long tail of additional cycles pays for the work many times over.
The LTV-to-CAC ratio
LTV alone tells you almost nothing — it has to be compared to CAC. Standard benchmarks:
- LTV:CAC of 3:1 — healthy. You earn 3× what you spent to acquire.
- LTV:CAC of 1:1 — break-even on acquisition, no margin for fulfillment or growth.
- LTV:CAC of 5:1+ — possibly under-spending on growth; could acquire more aggressively.
How to increase LTV
- Reduce churn. Even a 1-point drop in monthly churn (from 6% to 5%) compounds into months of additional revenue per customer.
- Increase order value. Add-on products, upsells, build-a-box options — anything that raises the cycle's ARPU lifts LTV proportionally.
- Increase frequency. If customers will accept it, shorter intervals (every 30 days instead of every 45) compress more cycles into the same lifespan.
- Win back churned subscribers. A customer who returns after a lapse extends their effective lifespan.