What Is Lifetime Gross Profit (LTGP) and How to Calculate It

I spend most of my time talking to Churn.io customers about their unit economics. Almost all of them track lifetime value (LTV), but almost none track lifetime gross profit (LTGP).

When we calculate it together, the number almost always comes in lower than they expected. Sometimes by 30% to 40%.

That gap matters because it changes how much you can afford to spend on growth.

Key takeaways

• Track LTGP with revenue-only LTV because COGS can make a customer worth much less than revenue suggests.
• Use LTGP:CAC when setting CAC budgets, especially if your LTV formula doesn’t include gross margin.
• Dropping monthly churn from 5% to 4% can raise LTGP more than a 10% price increase.
• Segment LTGP by customer type because your biggest customer group may not be your most profitable one.
• Include hosting, payment fees, support labor, and customer success time in COGS when those costs help deliver the product.

What is LTGP?

Lifetime gross profit (LTGP) measures the gross profit a business earns from a customer over the whole customer relationship.

Gross profit means revenue minus cost of goods sold (COGS). In SaaS, COGS often includes:

• Hosting
• Customer support
• Customer success
• DevOps
• Transaction fees
• Third-party tools or data needed to deliver the product.

Customer acquisition costs should stay out of COGS because those belong in customer acquisition cost (CAC).

How LTV and LTGP differ

LTV and LTGP both help you measure customer value. The difference is what each metric counts.

Some teams use LTV to mean total revenue from a customer. Other teams use a profit-based CLV formula that includes gross margin. In this article, revenue-only LTV means total customer revenue, and LTGP means customer gross profit after COGS.

Say a customer pays $50 per month and stays for 20 months. Their revenue-only LTV is $1,000. Now say it costs $15 per month to serve that customer. That cost includes hosting, support, and payment fees.

Their monthly gross profit is $35 and their LTGP is $700. Same customer. Very different budget.

That difference matters most when you set a customer acquisition cost target. If you use revenue-only LTV as your guide, you may spend too much to acquire customers.

How to calculate LTGP for a subscription business

The core formula is:

Average Gross Profit per Customer × Average Customer Lifespan

We’ll go more in-depth with the formula below.

Step 1: calculate churn rate and lifespan

Your monthly churn rate is the starting point because it estimates how long your average customer stays.

Average Customer Lifespan = 1 ÷ Monthly Churn Rate

At 5% monthly churn, average customer lifespan is 20 months. At 3%, it's about 33 months.

Here's what surprises most teams. A 1-point churn drop (from 5% to 4%) changes the math in a big way. Average lifespan rises from 20 months to 25 months.

That is a 25% lift in the lifespan multiplier.

A 10% price increase only lifts LTGP by 10% when churn, COGS rate, conversion rate, and CAC stay the same.

Step 2: Identify your SaaS COGS

COGS is where many teams get LTGP wrong. They skip costs that help deliver the product.

For SaaS and subscription businesses, COGS often includes:

A lean self-serve product may sit near the low end of COGS. A high-touch product with support, customer success, onboarding, or services may sit much higher.

As a broad benchmark, many healthy SaaS companies aim for gross margins around 70% to 85%, which means COGS often lands around 15% to 30% of revenue. Some products will fall outside that range based on stage, model, and service load.

You don’t need perfect numbers to start. A rough COGS estimate is better than ignoring COGS.

Step 3: calculate gross profit per customer

Now subtract the cost of serving the customer from the revenue they bring in.

Say your ARPA is $50 per month. That means the average customer pays you $50 each month.

Now say your COGS is 28% of revenue. That means it costs you 28 cents of every dollar to serve that customer.

So for every dollar you earn, you keep 72 cents as gross profit.

For a $50 customer, the math looks like this:

$50 × 28% = $14 in monthly COGS

$50 − $14 = $36 in monthly gross profit

So this customer does not give you $50 in monthly profit. They give you $36 in monthly gross profit.

That $14 gap matters because it changes how much you can afford to spend to win that customer.

Step 4: Calculate LTGP

Now combine monthly gross profit with average customer lifespan using this formula:

Monthly Gross Profit per Customer × Average Customer Lifespan

Using the same example:

• Monthly gross profit: $36
• Monthly churn: 5%
• Average customer lifespan: 20 months

When multiplying gross profit ($36) × and the average customer lifespan, you’d get an LTGP of $720.

Revenue-only LTV for the same customer is: $50 × 20 = $1,000

That’s a 28% gap from one COGS adjustment.

With 500 customers, that gap equals $140,000 in value that looked real on paper but wasn’t gross profit.

Step 5: calculate your LTGP:CAC ratio

CAC is the cost to acquire one new paying customer. In most SaaS models, CAC includes sales and marketing costs divided by the number of new customers acquired.

Here’s the formula:

LTGP ÷ CAC

If your LTGP is $720 and your CAC is $200, your ratio is: $720 ÷ $200 = 3.6:1

That number helps you judge whether growth is sustainable.

What LTGP:CAC ratio should you target?

The common SaaS benchmark is about 3:1 for LTV:CAC. A 3:1 ratio means the business creates about $3 in lifetime value for every $1 spent to acquire a customer.

That benchmark works best for high-margin, automated models. Businesses with more manual sales, onboarding, support, or delivery usually need more cushion because labor costs grow as the customer base grows.

Use this ladder as a planning guardrail:

Say a founder closes every deal and runs every onboarding call. A 4:1 LTGP:CAC ratio may look healthy at first.

That ratio may still be thin once the founder hires a salesperson, adds customer success, and pays for the same work at scale.

A pure self-serve tool can often grow with a lower ratio. A product with account executives and customer success managers usually needs more margin before growth is safe.

Why 3:1 LTV:CAC is not enough

The 3:1 LTV:CAC rule can mislead you when your LTV formula is revenue-only.

COGS, support, infrastructure, payment fees, onboarding, and delivery costs all reduce what you keep. If you use revenue-only LTV, your ratio can look stronger than it is.

Say your revenue-only LTV:CAC ratio is 4:1.

If COGS is 30% of revenue, your gross margin is 70%.

That means your LTGP:CAC ratio is:

4 × 70% = 2.8:1

That’s below the common 3:1 target.

This is why the gross-profit version matters. Muhammad Abedi makes the same core point in his breakdown of the 3x rule: the 3:1 benchmark comes from high-margin software and venture circles, so lower-margin or more manual businesses need a larger cushion.

The fix is simple: use LTGP:CAC when your goal is to decide how much you can afford to spend on growth.

Where LTGP breaks down

LTGP is useful, but it can still mislead you when the inputs are too broad.

1. Average COGS can hide expensive customers

Average COGS can hide your hardest-to-serve accounts.

If one segment sends far more support tickets, uses more server resources, or needs more customer success time, that segment has lower LTGP.

Segment by plan, use case, support load, and customer type when you can.

2. Cancel-and-return customers can distort lifespan

The 1 ÷ churn formula assumes churn behavior is stable over time.

That model gets messy when customers cancel and later resubscribe. This is common in some B2C, seasonal, and freemium products.

For those products, cohort data is usually safer than a simple churn formula.

3. Annual contracts can make monthly churn noisy

Monthly churn can be a weak lifespan input when most customers are on annual contracts.

If renewals happen once per year, monthly churn may stay low for months and then spike during renewal periods.

Use cohort-based lifespan from your own renewal data when annual contracts drive most of your revenue.

4. A healthy ratio can hide a cash flow problem

LTGP:CAC tells you the total return from a customer. It doesn’t tell you how fast you get your cash back.

Say LTGP is $4,000 and CAC is $1,000. That’s a 4:1 ratio.

Now say you collect only $40 per month in gross profit.

Your payback period is: $1,000 ÷ $40 = 25 months

That is a cash flow problem.

Track LTGP:CAC and payback period because they answer different questions.

FAQ

What is gross profit vs. lifetime value?

Gross profit is revenue minus COGS for a set period. Revenue-only lifetime value adds up the revenue a customer pays over their lifespan. Lifetime gross profit adds up the gross profit from that same customer over that same lifespan.

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