Why LTV Is the Most Important Number for Your App
Customer lifetime value tells you how much revenue a single user will generate over their entire relationship with your app. It is the foundation for every growth decision — how much to spend on acquisition, what to pay affiliates, whether your business is sustainable.
Getting LTV right is not complicated, but using the wrong formula for your app's model will give you misleading numbers.
The Basic LTV Formula
For subscription apps, the simplest LTV calculation is:
LTV = Average Revenue Per User (ARPU) ÷ Monthly Churn Rate
If your average monthly revenue per subscriber is $8 and your monthly churn rate is 5%, your LTV is $8 ÷ 0.05 = $160.
This formula assumes constant ARPU and churn over time. It is a useful starting point but overestimates LTV for apps where churn is higher in the first few months and stabilises later.
A More Accurate Approach: Cohort-Based LTV
Cohort-based LTV tracks actual revenue from a group of users who started subscribing in the same month. Instead of using averages, you measure real retention and spending behaviour over time.
To calculate cohort LTV:
- Select a monthly cohort (for example, all users who subscribed in January)
- Track their cumulative revenue each month
- At month 12, their cumulative revenue divided by the original cohort size is your 12-month LTV
This method is more accurate because it captures the reality that churn is not constant. Most subscription apps see heavy churn in months 1 to 3 followed by stabilisation as committed users remain.
Factoring in Different Plan Types
If your app offers multiple subscription tiers (monthly and annual, or basic and premium), calculate LTV separately for each plan type.
Annual subscribers typically have much higher LTV than monthly subscribers because the upfront commitment reduces early churn. A user paying $59.99 annually with 80% year-over-year retention has a very different LTV from a $5.99 monthly subscriber with 8% monthly churn.
Weight your overall LTV by the percentage of subscribers on each plan to get a blended figure.
Including Non-Subscription Revenue
If your app generates revenue beyond subscriptions — consumable purchases, tips, one-time feature unlocks — include this in your LTV calculation. Sum all revenue sources per user to get the complete picture.
For most subscription apps, recurring subscription revenue represents 80% or more of LTV. But ignoring supplementary revenue streams undervalues your users and may cause you to underinvest in acquisition.
How LTV Drives Affiliate Commission Decisions
Your LTV determines the maximum you can afford to pay an affiliate per referral. A common framework:
- Calculate your blended LTV across all plan types
- Subtract your costs (hosting, support, platform fees, the app store's cut)
- The remaining gross profit per customer is your ceiling for total acquisition cost
- Set affiliate commissions at a fraction of this ceiling — typically 20% to 40% of expected gross profit
For example, if your LTV is $120, your costs are $40, and your gross profit per customer is $80, you might pay affiliates up to $24 to $32 per referral (30% to 40% of gross profit) while maintaining healthy margins.
With recurring commissions, the math works the same way — just spread over the subscription lifetime. A 20% recurring commission on a $10 monthly subscription with 10-month average lifetime totals $20 in affiliate payouts against $100 in revenue.
When to Recalculate
Recalculate LTV quarterly, or whenever you make significant changes to pricing, onboarding, or retention features. LTV is not static — it improves as your product gets better and your retention increases.
Track LTV by acquisition channel through Insert Affiliate's reporting. Affiliate-referred users may have different LTV than organic or paid users, and understanding this difference helps you optimise commission structures for maximum ROI.