Customer Lifetime Value Calculator
Enter order value, purchase frequency, customer lifespan and margin to estimate what one customer is worth. The default example gives a lifetime value of $360.00.
How the customer lifetime value calculator works
Customer lifetime value, often shortened to CLV or LTV, estimates the total amount a customer is worth to your business over the whole relationship. It helps you decide how much you can afford to spend to win a customer and which customers deserve the most attention.
This calculator gives you two versions. The simple formula counts revenue only. The margin-based formula multiplies by gross margin, so it reflects the money you keep after the direct cost of goods or delivery. The margin-based figure is usually the better one for budgeting, because revenue is not profit. Use the dropdown to choose which one appears as the main result. Both are always shown.
The formulas
Example: A customer spends $50 per order, orders 4 times a year and stays for 3 years. Annual revenue is $200.00, so the simple CLV is $600.00. At a 60 percent gross margin, the margin-based CLV is $360.00. With an $80 acquisition cost, the LTV to CAC ratio is 4.5 : 1, and profit per customer after acquisition is $280.00. These are illustration numbers, not industry benchmarks.
Estimating lifespan
If you track churn, a common shortcut is lifespan equal to one divided by the annual churn rate. A business losing 25 percent of customers per year has an average lifespan of about 4 years. Lifespan is the shakiest input, so test lower values.
Limits
Averages hide differences between customer groups, and the formulas here ignore discounting of future cash and changes in spending over time. Treat the result as a planning estimate. To check the margin input, use the gross margin calculator.
Enter gross margin as a whole number, such as 60 for 60 percent. If you sell subscriptions, treat each billing as an order and set purchases per year to 12 for monthly plans. Keep acquisition cost to what you actually spent to win each new customer, including ad spend and sales time.
How to use the result
Compare CLV with acquisition cost to see what you can spend to win a customer. If the margin-based CLV is lower than the cost to acquire, each new customer loses money over time. You can improve CLV by raising order value, increasing purchase frequency, lengthening lifespan through better service, or improving margin. Break the numbers out by customer segment or acquisition channel if you can, because one blended average often hides your best and worst groups.
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Frequently asked questions
What is customer lifetime value?
It is the total revenue or profit you expect from one customer over the length of the relationship.
What is the difference between simple and margin-based CLV?
Simple CLV uses revenue only. Margin-based CLV multiplies by gross margin, so it estimates profit rather than sales. Here they are $600.00 and $360.00.
What is a good LTV to CAC ratio?
Many businesses aim for lifetime value that is well above acquisition cost, and 3 to 1 is a commonly quoted rule of thumb. Your own margins and payback time matter more.
How do I find customer lifespan?
Divide 1 by your annual churn rate, or measure the average time customers stay active from your own order records.
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