Retention turns revenue into lifetime value.
This subscription model estimates customer lifetime as one divided by monthly customer churn. Multiplying that lifetime by monthly revenue and gross margin produces an approximate gross-profit lifetime value.
The model is intentionally simple. It assumes constant churn, revenue and margin, with no expansion or discounting. Early cohorts, changing customer mix and very low churn can make the estimate unstable.
The formula, made clear.
- Gross margin
- Expressed as a fraction in the formula; 80% is 0.80.
- Monthly customer churn
- Customer losses, not net revenue churn.
- Estimated lifetime
- 1 divided by monthly churn as a fraction.
Put the numbers in context.
$200.00 monthly revenue, 80% gross margin and 2% monthly customer churn imply a 50-month lifetime and $8,000.00 gross-profit LTV.
| Input | Example value |
|---|---|
| Monthly revenue per customer | $200.00 |
| Gross margin | 80% |
| Monthly customer churn | 2% |
| Estimated gross-profit LTV | $8,000.00 |
What this calculation assumes
Constant positive customer churn, ARPU and margin. No expansion, discount rate, cohort changes or acquisition costs. Zero churn cannot give a finite LTV in this model.
What to consider next.
Compare this estimate with actual cohort gross profit and the cost to acquire a customer.
How we approach financial models →