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Unit economics & SaaS
Customer lifetime value
The gross profit a customer generates over their whole relationship: average revenue per period, times gross margin, divided by the churn rate.
Owned by: Senior analystTest band: Senior analyst
The formula
LTV = ARPA × Gross margin % ÷ Churn rate
In practice
Use gross margin, not revenue, or LTV is a fantasy. And be honest about churn — a 2% monthly churn is a four-year life, not forever.
The kind of thing the test asks
- Average revenue per customer is $100 a month, gross margin 80%, monthly churn 4%. LTV is…
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