Three LTV formulas, three jobs
- Simple LTV — for ratio benchmarking against published numbers. Most LTV:CAC benchmarks use this.
- Expansion-adjusted LTV — for businesses with material expansion (PLG, usage-based, multi-seat). Captures the lift NRR > 100% provides.
- Cohort-curve LTV — for businesses with non-flat churn (D2C subscription, consumer apps). Not computed here; requires retention curve data.
When expansion-adjusted breaks
If monthly expansion equals or exceeds monthly churn, the formula goes infinite. In practice cap the implied lifetime at 60–84 months. Beyond that the assumption "expansion continues forever" is unsupportable, and the math should defer to a cohort retention curve.
What inputs to use
ARPU: new-cohort ARPU at the time of acquisition, not blended. Blended ARPU rises with expansion and overstates new-customer economics.
Gross margin: recurring gross margin. Strip implementation revenue (it's not recurring and the margin is different).
Churn: logo churn (customer count), not revenue churn. Revenue churn nets out expansion and contaminates the formula.
Net expansion: only the lift from retained accounts. Customers who churn don't expand.