LTV Formula 2026 ARPU x Margin / Churn
Calculate customer lifetime value with an interactive sensitivity analysis showing how small changes in churn rate dramatically shift LTV. The aha moment that makes people bookmark this page.
LTV = ARPU x Gross Margin / Monthly Churn Rate
= $400 x 75% / 3% = $10.0K
LTV Sensitivity Analysis
See how small changes in churn rate dramatically shift LTV. A 0.5% improvement in monthly churn can be worth thousands per customer.
| Monthly Churn | Lifetime (months) | LTV | vs. Your Rate |
|---|---|---|---|
| 0.5% | 200.0 | $60.0K | +$50.0K |
| 1% | 100.0 | $30.0K | +$20.0K |
| 1.5% | 66.7 | $20.0K | +$10.0K |
| 2% | 50.0 | $15.0K | +$5.0K |
| 2.5% | 40.0 | $12.0K | +$2.0K |
| 3% (yours) | 33.3 | $10.0K | Current |
| 4% | 25.0 | $7.5K | $-2500 |
| 5% | 20.0 | $6.0K | $-4000 |
| 7% | 14.3 | $4.3K | $-5714 |
| 10% | 10.0 | $3.0K | $-7000 |
Simple vs Cohort-Based LTV
The simple formula (ARPU x Margin / Churn) works well when your churn rate is relatively stable and your ARPU does not change much over the customer lifetime. For most pre-Series B companies with straightforward subscription pricing, this is sufficient.
Cohort-based LTV tracks actual revenue from a group of customers acquired in the same period (e.g., all January 2025 sign-ups) over time. Month by month, you observe how much revenue that cohort generates. After 12-24 months of data, you can model the revenue curve and extrapolate total lifetime value. This approach captures non-linear patterns: high early churn that flattens, expansion revenue that accelerates, seasonal effects.
When to switch: once you have 18+ months of cohort data and either significant expansion revenue (NRR above 110%) or observable churn curve flattening, cohort-based LTV will give materially different (usually higher) results than the simple formula.
Common LTV Calculation Mistakes
Using revenue instead of gross profit
LTV should use ARPU x Gross Margin, not raw ARPU. A customer paying $500/month with 60% margin generates less lifetime value than one paying $400/month with 80% margin.
Ignoring churn curve shape
Most SaaS products see higher churn in months 1-3 that then flattens. Using the average monthly churn rate understates LTV for mature cohorts and overstates it for newer ones.
Not accounting for expansion
If you have strong NRR (> 110%), the simple formula underestimates LTV because it ignores the revenue growth from existing customers. Cohort analysis captures this.
Calculating too early
You need at least 6 months of retention data before the simple formula is meaningful, and 18+ months before cohort analysis adds value. Early-stage LTV calculations are estimates, not facts.