Customer Lifetime Value (LTV) Calculator

The straightforward form multiplies three things: LTV = average order value × orders per year × years retained. A customer who spends $100 per order, twelve times a year, for three years produces $3,600 of revenue. Then apply your margin to convert that into what the customer is actually worth. At a 30% contribution margin the same customer is worth 3,600 × 0.30 = $1,080 in gross profit — a very different number, and the one you should be making decisions with. Each input has a preferred definition. Average order value should come from real order history, not a price list, since discounts and mix pull it down. Orders per year should be measured across all customers including the quiet ones, not just the active ones. And years retained is the input people most often invent; the next section gives a way to derive it instead of guessing.

Set the margin field to 100% and this calculator gives you revenue LTV — the total the customer will spend. That figure is useful for forecasting sales, and it is almost useless for deciding what to pay to acquire someone. The reason is simple: you never keep the revenue. Product cost, payment processing, fulfillment and the cost of serving the account all come out of it first. The version that belongs in an acquisition decision is gross-profit LTV, and the margin you apply should be the contribution margin — everything that varies with the customer, not just cost of goods. The gap is large enough to flip conclusions. At a 25% margin, that $3,600 revenue LTV is $900 of gross profit. A $500 CAC looks like an easy yes against $3,600 and a genuinely marginal call against $900. Whenever you see an LTV quoted without an adjective, assume it is revenue and ask.

"Years retained" is where most LTV estimates go wrong, because it is usually assumed rather than measured. If you know your churn rate, you can derive it: average lifetime = 1 ÷ churn rate, in whatever period the churn is measured. A 5% monthly churn implies an average life of 1 ÷ 0.05 = 20 months. A 20% annual churn implies 5 years. Turned around, an 80% annual retention rate is the same statement as a 5-year average lifetime — and if your real retention is 60%, the average life is 2.5 years, not the 5 someone put in the spreadsheet. That gives the compact subscription form of the formula: LTV = monthly revenue per customer × margin ÷ monthly churn rate. At $50 a month, a 70% margin and 4% monthly churn, LTV is 50 × 0.70 ÷ 0.04 = $875. One caution about this shortcut: it treats churn as constant, and in reality churn is highest early and falls for survivors. That makes the simple formula slightly optimistic for young cohorts and slightly pessimistic for old ones.

On its own, LTV is a number with no decision attached. Paired with CAC it becomes the central ratio in growth: how much a customer returns for every dollar spent winning them. With a $1,080 profit LTV and a $200 CAC, the ratio is 5.4×, comfortably above the 3× benchmark most operators use. The three is not arbitrary — profit LTV still has to cover product development, support and overhead, so a ratio near 1 means acquisition merely pays for itself and funds nothing else. The two sides must be measured consistently or the ratio is fiction. If LTV counts only paying customers, CAC must be divided by paying customers too, not by signups. If LTV is in gross profit, CAC is compared against gross profit. Mixing a revenue LTV with a fully loaded CAC is the most common way a struggling business convinces itself it is fine. Also watch the timing. A high ratio built on a five-year lifetime does not help if the CAC has to be paid today and takes two years to come back. Read the ratio alongside CAC payback period.

Three things systematically inflate the number. Survivor bias. Averaging spend across customers who are still around ignores everyone who left in month two. LTV should be computed on whole cohorts — everyone who joined in a given month, including the ones who vanished immediately. No discounting. A dollar arriving in year four is worth less than a dollar today, and considerably less if it is uncertain. Long-horizon LTV without any discount rate overstates present value, and the further out the tail runs, the more it overstates. Optimistic tails. Extending "years retained" from three to five raises LTV by two thirds while resting entirely on an assumption about a future you have not observed yet. If your business is younger than the lifetime you are claiming, you are extrapolating, not measuring. The conservative habits are worth adopting: cap the horizon at something you have actually seen, use gross profit rather than revenue, and recompute per segment. LTV varies enormously between acquisition channels, and a blended average can be an artifact of one excellent cohort carrying several poor ones.