Before you agree a price per lead, trial or sale with any marketing partner, you need one number: the most you can pay for a customer and still make money. Here is how to get it in four steps — and a calculator to run it for your own product.
The whole method on one line
Step 1. Start from contribution, not from revenue
Revenue per customer is the wrong starting point. Take what a customer pays you and subtract everything that grows with each customer. What remains is contribution per month.
| Per customer, per month | Example |
|---|---|
| Subscription price | $20.00 |
| Payment processing fees | − $1.00 |
| Refunds and chargebacks | − $1.20 |
| Hosting, tools and support | − $1.80 |
| Contribution | $16.00 |
Step 2. Estimate lifetime — conservatively
For a subscription, lifetime value (LTV) is contribution per month multiplied by the average number of months a customer stays. If churn is fairly stable, the average lifetime is simply 1 ÷ monthly churn.
LTV ≈ monthly contribution ÷ monthly churn rate
See how much churn changes the answer with the same $16 contribution:
| Monthly churn | Average lifetime | LTV |
|---|---|---|
| 5% | 20 months | $320 |
| 8% | 12.5 months | $200 |
| 12% | 8.3 months | $133 |
| 20% | 5 months | $80 |
Use the churn you have actually observed. If you have cohort data, use the median cohort, not the best one. Three months of real retention beat a twelve-month projection.
Step 3. Decide what share of LTV you are willing to spend
Spending 100% of LTV on acquisition means you only break even — and only if your estimates are right. The ratio between lifetime value and customer acquisition cost (LTV:CAC) tells you how much room you leave yourself.
| LTV:CAC | What it means |
|---|---|
| 1:1 | Break-even. Every customer pays back exactly what it cost — no profit, no room for error. |
| 2:1 | Thin margin. Works for products with very predictable retention. |
| 3:1 | Healthy default for most growing subscription businesses. |
| 5:1 and above | Very safe — but you are probably under-investing in growth. |
If cash is tight, also set a payback period: how many months until a customer has paid back their acquisition cost.
Step 4. Translate it down the funnel
You may not pay per customer. If you pay per trial, per lead or per install, multiply the maximum cost per customer by the share of those actions that become paying customers.
Max price per action = max cost per customer × action-to-customer rate
Worked example
| Step | Input | Result |
|---|---|---|
| Contribution | $20 price − $4 variable costs | $16 / month |
| Lifetime value | $16 ÷ 12% monthly churn | ≈ $133 |
| Max cost per customer | $133 ÷ 3 (LTV:CAC 3:1) | ≈ $44 |
| Max price per trial | $44 × 35% trial-to-paid | ≈ $15 |
So in this example, paying up to about $15 per validated trial keeps the business healthy. Paying more is a bet that retention will improve.
Calculate it for your product
- Contribution / month
- $0
- Average lifetime
- 0 mo
- Lifetime value
- $0
- Max cost per customer
- $0
Estimate only, based on the inputs above. Real results depend on your product, market and traffic.
Common mistakes
- Using gross revenue instead of contribution. It makes every customer look more valuable than they are.
- Projecting retention you have not seen yet. Model it, but don’t pay for it.
- Ignoring refunds and chargebacks — they quietly reduce contribution in many markets.
- One number for all markets. LTV differs by country, device and channel. Set prices per market when the data allows.
Where a revenue share fits
If your LTV estimate is uncertain, split the price: a fixed price per action well below your maximum plus a share of revenue from renewals. You stay protected if retention disappoints, and your marketing partner is rewarded if it outperforms. That is exactly the kind of deal pay-for-performance marketing was designed for.
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