Customer Lifetime Value (LTV) Calculator
How much gross profit does a customer generate?
Customer Lifetime Value (LTV) Calculator
LTV = Average order value x Purchases per year x Gross margin x Lifespan; LTV:CAC = LTV / CAC
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What This Calculator Does
The Customer Lifetime Value Calculator estimates the gross profit a customer generates over their relationship with your business, then compares it with acquisition cost. It reports LTV, the LTV:CAC ratio, and CAC payback so you can judge whether growth is creating value or just buying revenue.
How It Works
Annual revenue per customer is average order value multiplied by purchases per year. Applying gross margin gives annual gross profit. Multiplying that by the expected customer lifespan gives lifetime value on a gross-profit basis. Dividing LTV by CAC gives the LTV:CAC ratio, and dividing CAC by monthly gross profit gives payback in months.
Example
A customer spends $120 per order, four times a year, at a 60% gross margin, and stays for three years. Annual revenue is $480, annual gross profit is $288, and LTV is $864. With a $200 CAC, the LTV:CAC ratio is 4.32:1 and payback is about 8.3 months.
Formula
Revenue = Average order value x Purchases per yearLTV = Average order value x Purchases per year x Gross margin x LifespanLTV:CAC = Customer lifetime value / Customer acquisition costPayback months = CAC / (Annual gross profit / 12)Reading the Results
Customer lifetime value
Estimated gross profit from one customer over the entered lifespan, after the cost of goods but before operating overhead.
LTV to CAC ratio
Gross profit generated per unit of acquisition cost. A ratio above 1 means the customer is expected to return more gross profit than it cost to acquire them.
CAC payback
Months of gross profit needed to recover acquisition cost. Shorter payback reduces the cash tied up in growth.
Frequently Asked Questions
Should LTV use revenue or gross profit?
Gross profit is more useful for decisions because it accounts for the cost of delivering the product or service. Revenue-based LTV can make an unprofitable customer look valuable. State which definition you use when comparing with benchmarks.
What is a good LTV:CAC ratio?
A common planning benchmark is at least 3:1, meaning lifetime gross profit is three times acquisition cost. The right target depends on margins, payback period, retention, and how much risk the business can carry.
How do I estimate customer lifespan?
Use observed retention or churn for a comparable cohort. A simple approximation is 1 divided by annual churn rate. Avoid assuming a long lifespan without retention data, and test a shorter lifespan to see how sensitive the result is.
Does this calculator account for discounting?
No. It sums undiscounted gross profit over the lifespan. For a present-value view, discount each year’s gross profit at an appropriate rate; a dollar of profit three years from now is worth less than a dollar today.