How does the ltv and churn survival work?
Borrowed from Actuarial science: Survival curve with discounting
Life insurers model the chance a person is still covered each year. Here the same survival idea applies to subscribers: with monthly churn c, the share still active after t months is (1 - c)^t.
Each month's gross profit is multiplied by that share and discounted to today's value, then summed over 60 months.
Worked example
A US SaaS product earns $80 a month per account at a 70% margin, with 4% monthly churn and a 10% annual discount rate. Expected lifetime is 25 months and the five-year LTV is about $1,114.
How should I read my result?
Customers leave within about 20 months. Fix onboarding and retention before scaling acquisition.
Typical for small business software. Each point of churn removed lifts LTV noticeably.
Strong retention. You can afford a higher acquisition cost.
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Questions about ltv and churn survival
Why discount future profit?
Money received later is worth less than money received now, and later months carry more uncertainty.
What is a good LTV to CAC ratio?
A ratio near 3 to 1 is a common benchmark.
Is churn really constant?
Rarely. Churn is usually higher in early months, so use cohort data when you have it.