The lifetime value of a customer is the question every subscription business needs to answer well: when this person signs up, what will they actually be worth? Not what they paid on day one, not what they look like in the first month — but how much revenue, summed across however long they stay, will land in your account.
How to think about it
The math is two parts:
Lifetime value = Revenue per cycle × Number of cycles before churn
For a $30/month subscriber who stays 18 months, lifetime value is $540. The challenge is that "number of cycles before churn" isn't known when the customer signs up — you have to estimate it from your churn rate.
The estimation method for new customers
Use your churn rate to estimate expected tenure:
- Monthly churn rate of 5% → expected tenure 1 ÷ 0.05 = 20 months.
- Monthly churn rate of 8% → expected tenure 1 ÷ 0.08 = 12.5 months.
- Monthly churn rate of 3% → expected tenure 1 ÷ 0.03 = 33 months.
Multiply expected tenure by ARPU and you have estimated lifetime value for the average new customer.
The retrospective method for existing customers
For customers who have already churned, lifetime value is observed — just sum what they actually paid you. For customers still active, lifetime value to date is observable; remaining lifetime value is estimated based on their tenure and behavior.
A customer 9 months in with above-average engagement signals is likely to have higher future lifetime value than a 9-month customer who's been skipping cycles. Behavioral cuts matter.
Why the lifetime value of a customer drives decisions
- Acquisition spend. Healthy LTV:CAC is at least 3:1. The lifetime value of the customer is the cap on what you can rationally spend to acquire them.
- Save offer ceilings. When a customer hits cancel, what's the maximum discount you can rationally offer? Their remaining lifetime value, less your margin target. Higher-LTV customers warrant more aggressive save offers.
- Customer-level decisions. Should support spend extra time on this complaint? Should you comp the shipping on a damaged order? The customer's lifetime value tells you the value at risk.
The variation matters
Average lifetime value of a customer hides huge variation. Some customers churn in month 1; some stay 5 years. Acquisition channel, plan tier, and behavior in the first 60 days are usually strong predictors of which kind of customer you're getting. Segment your LTV calculations by these cuts and the patterns get actionable. See customer lifetime value for the core definition.