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Digital Marketing Academy · Lesson

Calculating LTV

Models and formulas.

The Simple Formula

The most widely used LTV formula multiplies average revenue per user by gross margin, then divides by churn rate.

Dividing by churn is mathematically equivalent to multiplying by average lifetime, so this single line captures revenue, profitability, and retention together.

LTV = ARPU x gross margin x (1 / churn rate)

A Worked Example

Suppose a streaming service charges 12 per month, runs a 70% gross margin, and loses 4% of subscribers each month.

Plugging these into the formula gives a clean, defensible LTV that you can compare directly against acquisition cost.

ARPU = 12/month
Gross margin = 0.70
Churn = 0.04
LTV = 12 x 0.70 x (1 / 0.04)
LTV = 8.4 x 25 = 210

All lessons in this course

  1. What Is Customer LTV
  2. Calculating LTV
  3. Predictive Segments
  4. Acting on Predictions
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