LTV stands for customer lifetime value: the total gross profit a business expects to earn from a single customer over the entire relationship. For subscription businesses, you calculate it 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 that customer generates over time.
For subscription businesses, approximate LTV using ARPU, gross margin, and churn: LTV equals ARPU times gross margin, divided by monthly churn rate. Be consistent about whether you are using gross or net revenue and which margin assumptions you apply.
Gross LTV uses gross profit, meaning revenue minus cost of goods sold, rather than raw revenue. This is the standard investors expect because it reflects actual value captured per customer. Net LTV goes further and also subtracts 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.
ARPU is $80 per month, gross margin is 80 percent, and monthly churn is 3 percent. Gross LTV equals ($80 times 0.8) divided by 0.03, which comes out to $2,133.
If your cost of goods sold changes, so does gross margin, and so does LTV. The key is always using the correct margin basis rather than mixing revenue and gross profit inputs.
As a multiple of CAC, SMB businesses typically target 3x to 5x, mid-market 4x to 7x, and enterprise 6x to 10x. Balance the ratio against payback speed rather than chasing the highest number alone.
Early-stage companies often show lower LTV because churn is still high and cohorts are young. Investors expect LTV:CAC to improve over time as retention matures and the product finds its footing with the right customers.
Using revenue instead of gross profit, and using the wrong churn input, such as logo churn where revenue churn is needed.
Mixing ARPU with ARPA, and ignoring contraction and expansion dynamics that move the real number.
Calculating LTV on too little data. With only six months of history, your churn rate is unreliable and LTV will be inflated by cohorts that have not had time to churn yet.
Put LTV on your financials slide alongside CAC and payback period, with a footnote on basis, meaning whether it is calculated on gross margin, blended or paid CAC, and which churn figure feeds it.
Show the trend across cohorts if you can. Improving LTV over successive cohorts is more compelling to investors than a single static number, since it demonstrates the product is getting stickier over time.
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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