Customer Lifetime Value Calculator
- Cost to serve
- Acquisition cost
- Profit per customer
You earn back the $80.00 acquisition cost in about 10 months.
How the customer lifetime value calculation works
Lifetime revenue for repeat buyers
Order value × orders a year × years they stay. $60 × 4 × 3 years is $720.
Lifetime revenue for subscriptions
Monthly revenue ÷ monthly churn. $50 a month with 4% churn means customers stay 25 months on average, so $1,250.
Apply your gross margin
Lifetime value is the gross profit, not the revenue. $720 at a 40% margin is $288.
Compare with acquisition cost
Divide lifetime value by CAC. $288 ÷ $80 is a 3.6 : 1 LTV:CAC ratio.
Worked example. A customer spends $60 an order, 4 times a year, for 3 years: $720 of revenue. At a 40% gross margin that's a $288 lifetime value. With an $80 acquisition cost the LTV:CAC ratio is 3.6 : 1 and each customer leaves $208 of profit.
Customer Lifetime Value FAQ
What is customer lifetime value?
Customer lifetime value (CLV or LTV) is the gross profit one customer brings in over the whole time they buy from you. It tells you how much you can afford to spend to win and keep a customer.
What is the customer lifetime value formula?
Average order value × purchases per year × years as a customer × gross margin. $50 × 6 × 2 × 50% is a $300 CLV.
How do I calculate LTV from churn?
Divide monthly revenue per customer by monthly churn, then multiply by gross margin. $30 a month at 5% churn and 80% margin is $30 ÷ 0.05 × 0.8 = $480.
What is a good LTV:CAC ratio?
There is no official standard. At 1 : 1 a customer's gross profit only repays the cost of winning them, and below that you lose money on every new customer. How far above 1 : 1 you need to be depends on your overheads, how fast you earn the cost back and how reliable your lifespan estimate is. Targets quoted online are rules of thumb, not benchmarks.
How long does it take to earn back acquisition cost?
Divide acquisition cost by the gross profit a customer brings in each month. In the example, $288 over 36 months is $8 a month, so an $80 CAC is earned back in 10 months. This is the CAC payback period.
Should CLV use revenue or profit?
Use gross profit when you compare it with acquisition cost. Revenue-based CLV is shown too, but it overstates what you can afford to spend to win a customer.
How do I find average customer lifespan?
For subscriptions, 1 ÷ monthly churn rate gives months. For repeat buyers, look at how long past customers kept ordering before they stopped.