Customer Lifetime Value (LTV) is the total gross profit a business expects to earn from a single customer over their entire relationship. For subscription businesses, LTV is calculated by dividing average monthly gross profit per customer by the monthly churn rate. LTV is paired with CAC to evaluate whether the cost to acquire a customer is justified by the revenue they generate.
For subscriptions, approximate LTV with ARPU, gross margin, and churn.
Be consistent about gross vs net revenue and margin assumptions.
Gross LTV uses gross profit (revenue minus COGS) rather than raw revenue. This is the standard investors expect because it reflects actual value captured per customer.
Net LTV goes further by also subtracting ongoing customer success or support costs. Most pitch decks use gross LTV since it is more standardized and comparable across companies.
Always specify which version you are presenting. Stating "LTV" without clarifying gross or net is a common source of confusion in fundraising conversations.
SMB: 3-5x CAC; Mid-market: 4-7x; Enterprise: 6-10x. Balance with payback speed.
Early-stage companies often have lower LTV due to higher churn. Investors expect LTV:CAC to improve over time as retention matures.
ARPU $80, Gross margin 80%, Monthly churn 3% → Gross LTV = (80 x 0.8) / 0.03 = $2,133.
If COGS is $16/mo instead of $16, gross margin shifts to 80% → same result. The key is using the correct margin basis.
Using revenue instead of gross profit; wrong churn input (logo vs revenue).
Mixing ARPA vs ARPU; ignoring contraction/expansion dynamics.
Calculating LTV on too little data. With only 6 months of history, your churn rate is unreliable and LTV will be inflated.
Financials slide with LTV/CAC and payback; add footnote on basis (gross margin).
Show the trend: improving LTV over cohorts is more compelling than a single number.
Use net revenue churn for a more conservative view if expansion is material.
For e-commerce or transactional businesses without recurring subscriptions.
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