Why sensitivity matters
Simple LTV formulas are extremely sensitive to churn and gross margin. Sensitivity analysis helps you avoid false confidence by showing how LTV changes under a small set of scenarios.
Base model (gross profit LTV shortcut)
Gross profit LTV ~ (ARPA * gross margin) / churn (with consistent monthly units).
How to pick ranges
- Pick churn and margin ranges that reflect uncertainty (not tiny deltas).
- Use segment-level inputs (plan/channel) instead of blended averages when possible.
- If churn changes by tenure, pair this with cohort curves for accuracy.
How to interpret results
- If LTV is most sensitive to churn, retention and activation matter most.
- If LTV is most sensitive to margin, COGS and variable cost control matter most.
- Use payback alongside LTV so you don't accept high LTV with dangerously long payback.
Scenario grid tips
- Start with base, downside, and upside scenarios before adding granularity.
- Use realistic steps (for example 1-2 points in churn) instead of tiny deltas.
- Label each scenario with actions you would take if it occurs.
Common mistakes
- Mixing monthly ARPA with annual churn (unit mismatch).
- Using revenue LTV while comparing to fully-loaded CAC (mismatch).
- Treating the shortcut as precise instead of directional planning.