How this calculation works
One customer is active in month 1. Each later month retains the previous month’s active probability, while every contribution is discounted from its month end. This finite model excludes acquisition cost and fixed overhead, and does not extrapolate an infinite lifetime.
Value = Σ gross contribution × (1−churn)ᵐ⁻¹ / (1+discount)ᵐA worked example
At 500 revenue, 60% contribution margin, 5% monthly churn and no discount for 12 months, expected contribution is about 2,757.84.
Good to know
A transparent arithmetic model using your inputs. Example prices, rates and multiples are demonstrations, not benchmarks or offers. No tax, exchange-rate conversion, live account access or automatic attribution is supplied. Monetary display is rounded; calculations retain additional precision.
State when churn happens in the model
The modeled customer is active in month 1 with probability one. Churn reduces the probability of being active in each later month. A 5% monthly churn assumption therefore gives active probabilities 1, 0.95, 0.9025 and so on.
The finite horizon matters. Twelve months of expected contribution is not an unlimited customer lifetime. Choosing a longer horizon adds possible later contribution but does not establish that revenue, margin or churn will actually remain constant.
Customer acquisition cost describes the spending required to acquire a customer. This contribution model excludes that spending, so it must be accounted for separately in a wider profitability analysis.
Separate gross contribution, discounting and acquisition cost
Revenue times gross margin gives the contribution in an active month. The tool weights it by survival probability and discounts the payment from the end of that month. The monthly discount rate is not an annual rate unless it has first been converted appropriately.
Acquisition costs and fixed overhead are excluded from this output. Subtract or analyze them separately using a matching customer cohort. Historical averages, expansion revenue, reactivation and changing behavior need evidence beyond this stationary scenario.
A few questions, answered
What happens with no churn and no discount?
The value is monthly gross contribution multiplied by the selected number of months.
What happens at 100% monthly churn?
Month 1 is still active under this timing convention. All later active probabilities are zero.
Is an expected active month a fraction of a real person?
No. It is a probability-weighted count across a cohort model. Individual customer histories remain discrete.