# Customer lifetime value (LTV): how to work it out simply > How to calculate customer lifetime value for a subscription business, why churn matters more than price, and how to use LTV to decide what a customer is worth. Published 1 October 2026 by The Scenario team. Source: https://use-scenario.com/blog/customer-lifetime-value **Short answer:** Customer lifetime value is what an average customer pays you before they leave. For a subscription business, divide what a customer pays a month by your monthly churn rate. At £30 a month and 5% churn, that's £30 ÷ 0.05 = £600. **Customer lifetime value** (LTV) is what an average customer pays you before they leave. For a subscription business the simple version needs two numbers you probably already know: what a customer pays a month, and your monthly churn rate. Divide the first by the second. A customer paying £30 a month, at 5% monthly churn, is worth about £30 ÷ 0.05 = **£600**. That number answers questions founders ask every week: how much can I spend to win a customer, is a cheaper plan worth it, and what is keeping a customer for a few more months actually worth? ## The simple formula **Lifetime value = average monthly revenue per customer ÷ monthly churn rate** It works because 1 ÷ churn is the average number of months a customer stays. At 5% monthly churn, the average customer stays 1 ÷ 0.05 = 20 months, so a £30-a-month customer pays about 20 × £30 = £600. If you don't know your churn rate yet, our guide on [how to calculate churn rate](/blog/how-to-calculate-churn-rate) shows how, and the free [churn calculator](/saas-churn-calculator) works out churn, lifetime and lifetime value together. ## Why churn matters more than price Look at what happens to the same hypothetical customer at different churn rates: | Monthly churn | Average lifetime | LTV at £30 a month | |---|---|---| | 10% | 10 months | £300 | | 7% | about 14 months | about £430 | | 5% | 20 months | £600 | | 3% | about 33 months | about £1,000 | Going from 5% to 3% churn adds about £400 to every customer's value, without changing your price at all. To get the same lift from pricing alone, you'd need to raise the price by about two thirds, from £30 to £50, and keep every customer. That's why reducing churn is usually the cheapest growth there is. It's also why lifetime value is such a sensitive number: small changes in churn swing it a lot, so work it out from a few months of churn, not one. ## Gross margin: the honest version Revenue isn't all yours to keep. If each customer costs you something to serve (hosting, payment fees, support time), the more honest lifetime value uses **gross margin**: the share of revenue left after those costs. **Lifetime value (margin) = monthly revenue per customer × gross margin ÷ monthly churn rate** Say the same £30-a-month customer costs about £6 a month to serve, so your gross margin is 80%. Their margin-based lifetime value is £30 × 0.8 ÷ 0.05 = **£480**. It's this number you should compare with what you spend to win a customer. ## Using LTV: what can you spend to win a customer? The cost of winning a customer, **customer acquisition cost** (CAC), is everything you spend on marketing and sales in a month divided by the new customers you got that month. If lifetime value is well above acquisition cost, every new customer pays for themselves and then some, and spending more on growth makes sense. If the two are close, each new customer barely pays back what they cost, and growing faster just burns cash faster. The other thing to watch is **payback**: how many months of a customer's payments it takes to cover what you spent to win them. For a small business without much cash, a short payback matters as much as a high lifetime value, because the money has to come back before you run out. The [runway calculator](/runway-calculator) shows how long your cash lasts while you wait. ## Common mistakes - **Using a churn rate from one good month.** It makes lifetime value look far higher than it is. Average three to six months. - **Mixing monthly and annual customers.** Annual customers churn on a different rhythm. Work their lifetime value out separately, or convert everything to monthly carefully. - **Forgetting that new customers behave differently.** Many subscription businesses lose more customers in the first month or two than later on. If that's you, a lifetime value from overall churn will be too low for customers who stick around and too high for brand-new ones. - **Treating it as a promise.** Lifetime value is an average from the past, not a forecast of any one customer. ## Doing it automatically Scenario connects to Stripe, read-only, and works out revenue per customer, churn and how long customers stay from your real subscription history, by plan as well as overall. You can see what each plan brings in on a sample business in the [live demo](/demo/products). ## The takeaway Divide what a customer pays a month by your monthly churn rate, and use gross margin if serving customers costs you much. Then put most of your effort into churn: a couple of points less churn is worth more than almost any price rise, and it makes every customer you win worth more. --- Scenario (https://use-scenario.com) is an AI finance partner for founders. Its figures are estimates, not financial advice.