Estimated gross-margin lifetime value and supporting figures
The simple subscription model assumes a constant customer churn probability and equal monthly revenue and margin. It reports gross-margin contribution over the reciprocal-churn lifetime, without discounting future amounts.
To check the margin used in the subscription estimate, the Profit Margin Calculator calculates margin from revenue and costs.
The formula
The simple subscription model assumes a constant customer churn probability and equal monthly revenue and margin. It reports gross-margin contribution over the reciprocal-churn lifetime, without discounting future amounts.
Worked customer lifetime value example
Monthly revenue per customer of 50, an 80% gross margin, and 5% monthly churn produce a modeled 20-month lifetime. Monthly gross-margin contribution is 40 and estimated LTV is 800.
How to use this calculator
- Enter monthly revenue per customer, gross margin.
- Set monthly customer churn using the stated units or choices.
- Calculate and compare estimated gross-margin lifetime value, modeled customer lifetime, monthly gross-margin contribution.
Choosing inputs for customer lifetime value
Use customer churn rather than revenue churn for this reciprocal-lifetime approximation. Customer churn describes relationships ending; revenue churn can change through downgrades, expansions, and different account sizes. Mixing the two changes the meaning of the estimate, particularly when a few customers generate much of the recurring revenue.
Gross margin adjusts revenue for the cost of providing the product or service. A revenue-only lifetime value and a gross-margin lifetime value are not interchangeable. The output here is a contribution estimate before acquisition spending and other overhead; it is not net profit or cash already earned.
Interpreting estimated gross-margin lifetime value
The reciprocal of churn is sensitive to small rate changes. Very low churn produces a long modeled life and a large LTV, which may be unreliable for a young product with limited observation history. Check actual customer cohorts and changing renewal behavior before using a constant-rate projection to set an acquisition budget.
Assumptions & limitations
What this calculation assumes
- Monthly revenue, gross margin, and customer churn remain constant.
- The approximation counts recurring contribution over an expected geometric lifetime.
What to keep in mind
- Discounting, expansion revenue, changing churn, acquisition costs, and fixed overhead are excluded. Zero churn is not supported because it implies unbounded lifetime.
Common questions
Can I use an annual churn rate?
Convert your analysis to consistent monthly inputs before using this monthly model; simply entering annual churn changes the result’s meaning.
Is this net profit per customer?
No. It is an estimated gross-margin contribution before acquisition costs and overhead.
What happens at zero churn?
The reciprocal-churn lifetime would be unbounded. Enter a positive observed or justified modeled monthly churn rate.
Sources & further reading
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