The short answer: divide ARPU by monthly churn rate. The longer answer is about which version of that calculation fits your situation — because there are at least four ways to compute LTV, and the differences matter for the decisions you're trying to inform.
The most common LTV calculation
LTV = ARPU ÷ Monthly Churn Rate
ARPU is the average revenue per user per month. Churn rate is the percentage of subscribers who cancel each month. If your ARPU is $30 and monthly churn is 5%, average tenure is 1 ÷ 0.05 = 20 months, and LTV is $30 × 20 = $600.
This is the formula 80% of subscription operators use 80% of the time. It's quick, easy to update monthly, and accurate enough for ongoing decisions.
The profit-adjusted version
LTV = (ARPU × Gross Margin) ÷ Monthly Churn Rate
Same as the simple formula, multiplied by gross margin. If fulfillment costs 40% of revenue, gross margin is 60%, and $600 LTV becomes $360 in gross profit per customer.
Use this version when comparing to CAC — both numbers should be on the same basis.
The cohort-observed version
For more accuracy, track real signup cohorts and sum their cumulative revenue over time. Pick a cohort (e.g., everyone who signed up in March 2024), watch their cumulative revenue at 30, 90, 180, 365 days, and continue until the curve flattens. The total is observed LTV — what the cohort actually generated, no formula assumptions.
Strengths: most accurate, captures churn curves and seasonality. Weaknesses: slow — you need 12+ months of data per cohort.
The discounted (NPV) version
For finance modeling, a dollar collected 18 months from now is worth less than a dollar today. Discounted LTV applies a discount rate (often 8–12% annually) to future revenue. The math gets more complex; the result is closer to the "present value" of a customer.
Most subscription operators don't need this version day-to-day. Finance teams modeling exit value or runway do.
Which version to use when
- Monthly check-in: Simple formula.
- Comparing to CAC: Margin-adjusted formula.
- Quarterly health check: Cohort-observed.
- Board reports / financial modeling: Discounted (NPV).
Whichever version you pick, be consistent — and label the calculation clearly so people reading the number know what they're looking at.