Customer Lifetime Value (LTV) Calculator
See how much profit a customer brings over their whole time with you, how that compares with what it costs to win them, and how fast you get that cost back.
Total sales ÷ number of orders.
How long a typical customer keeps buying from you.
Lifespan = 1 ÷ churn. 25% a year means customers stay 4 years on average.
ARPU: recurring revenue ÷ paying customers.
Customers who cancel ÷ customers at the start.
What's left of each sale after the cost of the goods or service. 100% shows revenue.
Ads, sales staff, tools and agencies for one period.
In the same period.
Money later is worth less than money now. 8–12% is often used; 0 turns it off.
Upsells, upgrades or price rises for customers who stay.
With low churn the sum runs for decades. Many investors count only 3–5 years.
Shows the lifetime value of your whole customer base.
Cumulative profit per customer
| After | Still buying | Profit so far | After CAC |
|---|
How your customer lifetime value is worked out
Lifetime value = profit a customer brings each month or year × how long they stay.
- 1
Revenue a year
$50 × 4 orders= $200 a year
- 2
Profit a year
$200 × 40%= $80 a year
- 3
Lifetime value
$80 × 3 yrs= $240
- 4
LTV:CAC ratio
$240 ÷ $60= 4 : 1
Read more: the formulas, worked examples, LTV:CAC, payback and how to raise LTV
Customer lifetime value (LTV or CLV) is the gross profit you can expect from one customer over the whole time they buy from you. Compare it with what it costs to win a customer (CAC) and you can see whether your marketing pays for itself, and how much you can afford to spend to grow.
The formula
Shop: LTV = average order value × orders a year × gross margin × years they stay
Subscription: LTV = revenue per customer a month × gross margin ÷ monthly churn
customer lifetime = 1 ÷ churn
LTV:CAC = LTV ÷ CAC
CAC = sales and marketing spend ÷ new customers
CAC payback (months) = CAC ÷ monthly gross profit per customer
with a discount rate, growth or a cap: LTV = sum of each month's profit × (1 + growth)^t × (1 − churn)^t ÷ (1 + discount)^t
Worked example: a shop
A customer spends $50 an order and orders 4 times a year, which is $50 × 4 = $200 of sales a year. At a 40% gross margin that leaves $200 × 40% = $80 of profit a year. Over a 3-year lifespan the customer brings $200 × 3 = $600 of revenue and $80 × 3 = $240 of lifetime value. If winning a customer costs $60, the LTV:CAC ratio is $240 ÷ $60 = 4 : 1. Monthly profit is $80 ÷ 12 = $6.67, so the $60 is paid back in $60 ÷ $6.67 = 9 months, and each customer leaves $240 − $60 = $180 after their CAC. To keep to 3:1 you could spend up to $240 ÷ 3 = $80 to win a customer.
Worked example: a subscription
A plan earns $50 a month per customer at an 80% gross margin, so each customer leaves $50 × 80% = $40 a month. With 4% monthly churn the average customer stays 1 ÷ 4% = 25 months. Lifetime revenue is $50 × 25 = $1,250 and lifetime value is $40 × 25 = $1,000 (the same as $40 ÷ 0.04). With a CAC of $300 the ratio is $1,000 ÷ $300 = 3.33 : 1 and simple payback is $300 ÷ $40 = 7.5 months. Because some customers leave early, the average customer reaches $300 of profit in about 8.7 months.
What if you cut churn or raise prices?
In the subscription example, cutting churn from 4% to 3% a month stretches the average lifetime from 25 to 33.3 months and lifts LTV to $40 ÷ 0.03 = $1,333.33, a 33% rise. A 10% price rise gives $55 × 80% ÷ 0.04 = $1,100, and 5 more points of margin give $50 × 85% ÷ 0.04 = $1,062.50. Small cuts in churn are often worth more than price rises. In the shop example, a 10% bigger order gives $264, 10% more orders also gives $264, and one more year gives $320.
LTV:CAC, the 3:1 rule of thumb
| LTV:CAC | What it usually means |
|---|---|
| Below 1 : 1 | You lose money on every customer you win. |
| 1 : 1 to 3 : 1 | Customers pay back, but there may not be enough left for overheads and profit. |
| 3 : 1 to 5 : 1 | The common target: healthy room for overheads and profit. |
| Above 5 : 1 | Very profitable customers; you might grow faster by spending more on marketing. |
3:1 is a widely quoted rule of thumb, not a law. A business with little cash may want a shorter payback; one with cheap funding may accept a lower ratio to grow faster.
Discount rate, growth and a cap
Money you receive years from now is worth less today. With a 10% yearly discount rate, each month's profit is divided by 1.1 for every year it is away (1.1^(t ÷ 12)). In the subscription example that brings LTV down from $1,000 to about $840.43. Profit is counted at the start of each month, so the first month is not discounted. A yearly rise in spend per customer (upsells, price rises) works the other way. When churn is low the sum can run for decades, so many investors count only the first 3 to 5 years: capping the subscription example at 2 years gives $1,000 × (1 − 0.96^24) = $624.59.
Shop lifespan from churn
If you know how many customers stop buying each year rather than how long they stay, lifespan is 1 ÷ yearly churn: losing 25% a year means customers stay 4 years on average, and $80 a year of profit gives $80 ÷ 25% = $320. Here a yearly churn rate is the monthly rate × 12, so 4% a month = 48% a year, and both give the same lifetime.
Ways to raise lifetime value
- Cut churn: better onboarding, support, reminders and win-back emails.
- Raise order or plan value: bundles, upsells, annual plans, free-shipping thresholds.
- Get customers to buy more often: subscriptions, loyalty points, replenishment reminders.
- Improve gross margin: better supplier prices, fewer returns, cheaper fulfilment.
These are averages: real customers vary a lot, and a few big spenders often lift the average. Churn is assumed to stay the same each month, which is rarely exactly true (new customers often leave faster). Use your own data from the last 12 months where you can, and recheck as your business changes.
Common questions
How do you calculate customer lifetime value?
For a shop, multiply the average order value by orders a year, by your gross margin, by the years a customer keeps buying. A customer who spends $50 four times a year for 3 years at a 40% margin is worth $50 × 4 × 40% × 3 = $240 in gross profit. For a subscription, divide the monthly profit per customer by monthly churn.
What is the LTV formula for SaaS and subscriptions?
LTV = average revenue per customer a month × gross margin ÷ monthly churn. The average customer stays 1 ÷ churn months, so at $50 a month, an 80% margin and 4% churn, a customer stays 25 months and is worth $40 × 25 = $1,000 in gross profit, or $1,250 in revenue.
What is a good LTV:CAC ratio?
A common rule of thumb is 3:1: a customer should bring in about three times what it cost to win them. Below 1:1 you lose money on every customer. Well above 5:1 can mean you are spending too little on marketing and growing slower than you could. It is a guide, not a law, and it depends on your cash and growth plans.
What is CAC payback period?
It is how many months of gross profit it takes to win back what you spent to get the customer: CAC ÷ monthly gross profit per customer. A $300 CAC and $40 of monthly profit pays back in 7.5 months. Because some customers leave early, the average customer takes a little longer, about 8.7 months at 4% monthly churn.
Should LTV use revenue or profit?
Use gross profit when you compare LTV with CAC, because revenue includes the cost of the goods or service you still have to pay. This calculator shows both: lifetime revenue, and lifetime value after your gross margin. Leave the margin at 100% if you only want revenue.
How can I increase customer lifetime value?
Keep customers longer, get them to buy more often, raise the average order or plan value, and improve your margin. For a subscription at 4% churn, cutting churn by 1 point lifts LTV from $1,000 to $1,333, a bigger gain than a 10% price rise, which gives $1,100.
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