How to calculate LTV
The simple LTV formula needs three monthly numbers:
- ARPPU. Average purchase revenue per paying customer per month. See ARPU.
- Gross margin. The share of that revenue you keep after app store commission, payment fees, and the cost to serve the customer.
- Churn rate. The share of paying customers who leave each month. See churn rate.
Multiply ARPPU by gross margin to get monthly gross profit per customer. Divide by churn. Dividing by churn is the same as multiplying by the average lifetime, because 1 ÷ monthly churn is the average number of months a customer stays.
Worked example
A language learning app charges $12 a month. It sells through the App Store at a 15% commission and spends about $0.60 per subscriber each month on servers and support.
| Per subscriber, per month | Value |
|---|---|
| ARPPU | $12.00 |
| App Store commission, 15% | −$1.80 |
| Servers and support | −$0.60 |
| Gross profit ($9.60 ÷ $12 = 80% margin) | $9.60 |
| Monthly churn | 6% |
| LTV: $9.60 ÷ 0.06 | $160.00 |
At 6% monthly churn, the average subscriber stays 1 ÷ 0.06 = 16.7 months. That gives the same answer: $9.60 × 16.7 ≈ $160.
LTV calculator
Enter monthly numbers. Add your customer acquisition cost (CAC) to see the LTV:CAC ratio and payback. For a finite forecast, trial conversion, and blended plan revenue, use the full subscription LTV calculator.
Why the formula overstates LTV for new customers
The formula assumes every customer churns at the same rate forever. Two things break that.
First, churn measured across all your subscribers mixes new ones with loyal ones who have stayed for a year. Loyal subscribers rarely leave, so they pull the average down. New subscribers leave much faster, often at the first renewal. Put the blended rate into the formula and new customers look more valuable than they are.
Second, small churn numbers produce long lifetimes. At 2% monthly churn, the formula expects the average customer to stay 50 months. A young app has no data to show that anyone stays four years. The formula still counts that revenue as if you had already seen it.
Cohort LTV: the method that uses real payments
For apps, a better method is to measure what customers have already paid. Group customers by the month they started. Then add up their gross profit by day 30, 90, 180, and 365, and divide by the number of customers in the group.
| January cohort, 1,000 subscribers | Paying that month | Cumulative gross profit per subscriber |
|---|---|---|
| Day 30 | 100% | $9.60 |
| Day 90 | 60% | $22.08 |
| Day 180 | 50% | $37.15 |
| Day 365 | 42% | $62.88 |
Each number is money you already earned, so it is a floor, not a guess. Compare cohorts at the same age. If March subscribers reach $22.08 by day 90 faster than January did, something improved. You can still project the rest of the curve, but label the projection as a projection.
LTV:CAC ratio and CAC payback
LTV only matters next to what a customer costs to get. Customer acquisition cost (CAC) is marketing spend divided by the paying customers it brought in.
A common rule of thumb says a ratio of about 3:1 is healthy. It is a starting point, not a law. It also inherits every error in the LTV number.
Payback ignores churn, so treat it as a best case. The observed version is safer. Find the day when a cohort's cumulative gross profit per subscriber passes its CAC. In the table above, a $45 CAC pays back between day 180 and day 365, not after 4.7 months.
Common mistakes
- Using revenue instead of gross profit. Store commission alone can take 15% to 30% of each payment.
- Mixing periods. Annual ARPPU divided by monthly churn gives an LTV 12 times too large.
- Using ARPU across all users. Most free users never pay. Divide by paying customers for subscription LTV, or measure LTV per install on purpose and compare it with cost per install.
- Blending plan lengths. Annual and monthly subscribers churn on different schedules. Calculate LTV for each plan.
LTV in apps
App customers pay in more ways than a subscription. A user may buy a one-time unlock, renew a plan, and also earn you ad revenue. Add all of it, minus refunds, to get the full value. Then split cohort LTV by campaign, because the channel that brings the cheapest installs does not always bring customers who pay.
In DataDad, each customer's payments connect to the campaign that brought them in, so you can follow each cohort as it pays back its cost. See mobile attribution.
Questions
What is the difference between LTV and CLV?
None. Both stand for customer lifetime value. Some teams also write CLTV.
Should LTV use revenue or profit?
Use gross profit when you compare LTV with acquisition cost. Revenue LTV is fine for comparing cohorts, as long as you label it.
How long should the LTV window be?
Pick a window you have data for. Many apps compare cohorts at day 90 and day 365.