Customer Lifetime Value Calculator
Estimate what a customer is worth over time, and how much you can afford to spend to win one.
How to calculate customer lifetime value
Customer lifetime value (CLV or LTV) estimates the gross profit a typical customer brings in over the whole time they buy from you. Comparing it with your customer acquisition cost (CAC) shows whether your marketing pays for itself.
Customer lifetime value = Lifetime revenue × Gross margin ÷ 100
LTV to CAC ratio = Customer lifetime value ÷ Acquisition cost
Worked example
Customers spend $60 an order, order 3 times a year and stay for 2 years, so each brings in $360 of revenue. At a 45% margin that's $162 of gross profit. If winning a customer costs $40, the ratio is about 4:1, and you could spend up to $54 and keep a 3:1 ratio.
Where to find the numbers
- Average order value: revenue over a period divided by the orders in it.
- Orders per year: orders in the last year divided by the number of customers who placed them.
- Years as a customer: estimate it from how long your repeat customers keep ordering. If you're new, start with one year.
- Acquisition cost: marketing spend over a period divided by the new customers it brought in.
Customer lifetime value calculator FAQ
Why use gross profit instead of revenue?
Revenue includes the cost of the products you ship. Gross profit is what a customer actually leaves you to pay for marketing and running the store, so it's the fairer number to compare with what you spend to win them.
What is a good LTV to CAC ratio?
A common rule of thumb is about 3:1, so a customer brings in three times what they cost to win. Below 1:1 you lose money on every new customer. A much higher ratio can mean you could grow faster by spending more on acquisition.
How can I increase customer lifetime value?
Raise the average order value with bundles or free shipping thresholds, bring customers back more often with email, SMS or subscriptions, and keep them longer with good service. Each input multiplies the others, so small gains add up.
Is this an exact customer lifetime value?
No. It's a simple model that uses averages and doesn't discount future profit. It's best for comparing scenarios, such as what a 10% rise in repeat orders would be worth.