Customer lifetime value: what one customer is worth
Lifetime value is what an average customer pays you before they leave. For a subscription it follows from how much they pay and how long they stay.
The formula
LTV = ARPU ÷ monthly customer churn
An example
Customers pay €12 a month on average and 4% leave each month. They stay 1 ÷ 0.04 = 25 months on average, so LTV is €12 × 25 = €300.
Work it out with your numbers →How Sumly counts it
- Metrics shows LTV with the churn of the last 30 days, so it moves when churn moves.
- ARPU is MRR divided by the customers paying today.
Mistakes that make it lie
- Using a churn rate from a single quiet month, which makes LTV look endless.
- Comparing LTV to ad spend without taking off fees and refunds first.
Questions
How does LTV relate to what I can spend to win a customer?
Many founders aim to spend no more than a third of LTV to win a customer, so there is room for costs and profit. Treat it as a rule of thumb, not a law.
Read next
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