Subscription LTV Formula: How to Calculate LTV, LTV:CAC and Payback

Subscription LTV (lifetime value) is the gross profit you expect from a subscriber before they cancel. The simplest formula is average monthly revenue per subscriber × gross margin ÷ monthly churn rate. It gives a quick read, but it assumes churn stays flat across a subscriber's life, which it rarely does.

What is the subscription LTV formula?

LTV = average monthly revenue per subscriber × gross margin % ÷ monthly churn rate.

Say subscribers pay £30 a month, your gross margin after product, packaging and fulfilment is 60%, and monthly churn is 7%. £30 × 0.6 = £18 of gross profit a month. £18 ÷ 0.07 gives an LTV of about £257.

Use gross profit, not revenue. A revenue-based LTV makes every acquisition channel look affordable, and the gap shows up later in cash flow.

Why does the simple LTV formula overstate lifetime value?

Dividing by one monthly churn rate assumes every subscriber has the same chance of leaving each month. In practice most DTC brands lose the largest share of a cohort in the first few orders, then the rate settles. A brand with heavy early churn and a loyal long tail can get an LTV figure that no real cohort ever reaches. The churn guide explains why one churn rate hides this.

The fix is cohort LTV. Take the subscribers who joined in one month, add up the gross profit they have produced so far, and extend the curve using how older cohorts behaved at the same age. FILDI's subscriber decay calculators show the shape of that curve for Recharge, Skio and Loop.

How do you calculate LTV:CAC for a subscription business?

LTV:CAC = LTV ÷ customer acquisition cost.

CAC is total acquisition spend in a period (paid media, affiliate fees, influencer costs and first-order discounts) divided by the number of new subscribers in that period. Leave out the discount and CAC looks lower than it is.

A ratio of 3:1 is often quoted as healthy. Treat it as a rough guide. A 3:1 ratio built on an inflated LTV is worse than 2:1 built on real cohort data, and the ratio says nothing about how long you wait to get the money back.

What is CAC payback period?

CAC payback = CAC ÷ monthly gross profit per subscriber.

With a CAC of £60 and £18 of monthly gross profit per subscriber, payback takes about 3.3 months. If typical subscribers cancel before month four, that channel loses money however good the LTV:CAC ratio looks. Payback matters most for brands funding growth from cash flow.

How do first-order discounts affect LTV?

They hit it twice. The first order earns less, and heavily discounted cohorts usually churn faster, so there are fewer months of full-price margin to recover the cost. Compare LTV by acquisition offer, not only by channel. Two cohorts from the same channel can have very different value if one came in on a 50% first-box discount.

How can you increase subscription LTV?

Reduce churn in the first few orders, where most value is lost. Recover failed payments, because involuntary churn removes subscribers who still want the product. Raise gross margin per order through pricing, bundling and fulfilment costs. And check whether acquisition offers are bringing in people who stay.

You can run your own numbers in FILDI's LTV:CAC calculator.