💎 Customer Lifetime Value (LTV) Calculator
Calculate Customer Lifetime Value (LTV / CLV), gross profit LTV, and LTV-to-CAC health ratio for SaaS, subscription, and ecommerce businesses.
What Customer Lifetime Value (LTV) Calculator Does
This calculator estimates what a customer is worth over the whole relationship: average order value times purchase frequency times expected lifespan gives revenue LTV, and multiplying by gross margin gives the figure that actually matters, profit LTV. It then divides that by customer acquisition cost to give the LTV:CAC ratio.
Use the gross profit figure, not the revenue one, for every decision. Revenue LTV counts money that goes straight back out as cost of goods; a customer generating $1,050 of revenue at a 65% margin is worth $682.50 to the business, and spending $500 to acquire them looks comfortable against the first number and marginal against the second. The ratio here is deliberately computed on profit LTV for that reason.
There are two formulas in circulation for this and they look different enough that people argue about which is right. One uses expected lifespan, the other divides by churn rate. They are the same equation — expected lifespan is the reciprocal of churn — and the table below converts between them, because the input you have depends on whether you run a subscription business or a repeat-purchase one.
How to Use Customer Lifetime Value (LTV) Calculator
- Enter average order value (AOV) and purchase frequency per year
- Input average customer lifespan in years
- Enter your gross profit margin % and customer acquisition cost ($ CAC)
- View total revenue LTV, gross profit LTV, and LTV:CAC ratio
Formula Used by Customer Lifetime Value (LTV) Calculator
Revenue LTV and gross profit LTV
Revenue LTV = AOV × frequency × lifespan; Profit LTV = Revenue LTV × gross margin
- AOV
- Average order value — total revenue divided by number of orders
- frequency
- Purchases per year by one customer
- lifespan
- Years the customer keeps buying
- gross margin
- Revenue minus cost of goods sold, as a share of revenue
Worked example
The defaults: $75 average order, 4 orders a year, 3.5-year lifespan, 65% gross margin.
- Annual customer value: 75 × 4 = $300
- Revenue LTV: 300 × 3.5 = $1,050
- Profit LTV: 1,050 × 0.65 = $682.50
Result: $682.50 of gross profit per customer. The $1,050 revenue figure is the one most calculators headline; it is 54% larger and it is not money the business keeps.
The churn formula is the same formula
lifespan = 1 ÷ churn, therefore (ARPA × margin) ÷ churn = ARPA × margin × lifespan
- churn
- Share of customers lost per period — 20% a year means a fifth leave each year
- ARPA
- Average revenue per account per period, the same thing as AOV × frequency when the period is a year
Worked example
The #1 ranking page uses (ARPA × gross margin) ÷ churn. Our defaults use a 3.5-year lifespan. Do they agree?
- A 3.5-year lifespan implies churn of 1 ÷ 3.5 = 0.285714… (28.5714% a year)
- Wall Street Prep form: (300 × 0.65) ÷ 0.285714… = 195 ÷ 0.285714…
- = $682.50 — and 195 × 3.5 gives the same $682.50, because dividing by 1/3.5 is multiplying by 3.5
Result: Identical to the lifespan form, to the cent. The two formulas you will see quoted are one formula written two ways. Which one you use depends only on whether you measure churn or lifespan — and if you measure churn, divide 1 by it before entering a lifespan here.
LTV:CAC and CAC payback
LTV:CAC = Profit LTV ÷ CAC; Payback (months) = CAC ÷ (monthly gross profit per customer)
- CAC
- Fully loaded cost to acquire one customer — marketing spend plus sales cost, divided by customers won
- payback
- How long the customer must stay before the acquisition cost is recovered
Worked example
Profit LTV $682.50, CAC $80, and $300 of annual revenue at 65% margin.
- Ratio: 682.50 ÷ 80 = 8.53
- Monthly gross profit: (300 × 0.65) ÷ 12 = $16.25
- Payback: 80 ÷ 16.25 = 4.9 months
Result: 8.53:1 with a 4.9-month payback. Note the ratio is nearly three times the 3:1 rule of thumb — which is not automatically good news, as the interpretation below explains.
Churn Rate to Customer Lifespan
Expected lifespan is 1 ÷ churn under a constant churn rate. Profit LTV column computed at the default $300 annual value and 65% margin, to show how violently LTV moves with retention.
| Annual churn | Implied lifespan | Profit LTV at $300/yr, 65% margin |
|---|---|---|
| 5% | 20.00 years | $3,900.00 |
| 10% | 10.00 years | $1,950.00 |
| 15% | 6.67 years | $1,300.00 |
| 20% | 5.00 years | $975.00 |
| 28.57% | 3.50 years | $682.50 |
| 33% | 3.03 years | $590.91 |
| 50% | 2.00 years | $390.00 |
What Discounting Does to LTV
This calculator does not discount — it sums profit arriving up to 3.5 years out as though it were cash today. Present value of the same $682.50, discounted annually at each rate.
| Discount rate | Present value of profit LTV | Overstatement by not discounting |
|---|---|---|
| 0% (what this tool reports) | $682.50 | — |
| 8% | $574.20 | 15.9% |
| 10% | $551.53 | 19.2% |
| 15% | $500.97 | 26.6% |
LTV:CAC at Different Acquisition Costs
Profit LTV held at $682.50. The break-even point, where a customer costs exactly what they are worth, is a 1:1 ratio.
| CAC | LTV:CAC | Reading |
|---|---|---|
| $80 | 8.53:1 | Far above the 3:1 benchmark — likely underspending on growth |
| $150 | 4.55:1 | Healthy |
| $227.50 | 3.00:1 | Exactly the common benchmark |
| $300 | 2.27:1 | Thin — little room for error in the LTV estimate |
| $682.50 | 1.00:1 | Break-even before any fixed costs; the business loses money |
How to Read Your Result
A very high ratio is a problem, not a trophy
The 3:1 benchmark is usually presented as a floor, and it is — below it, acquisition costs eat the margin. But 8.53:1 on the default inputs is not three times as healthy. A ratio that high normally means a business is leaving growth on the table: it could spend considerably more to acquire each customer, win far more of them, and still clear the benchmark comfortably. Ratios well above about 5:1 are usually a signal to increase acquisition spending, not a result to celebrate.
Payback period is the constraint the ratio hides
LTV:CAC says whether a customer is worth acquiring eventually. Payback says how long your cash is tied up first, and cash is what businesses actually run out of. Two businesses can both sit at 4:1 while one recovers its CAC in 5 months and the other in 30 — the second has to fund two and a half years of acquisition before a customer contributes anything, which is a financing problem no ratio reveals. The default inputs here recover CAC in 4.9 months.
Lifespan is the assumption doing the damage
Look at the churn table: moving from 20% to 10% annual churn doubles LTV. Nothing else in the formula has that leverage — doubling AOV also doubles LTV, but halving churn is usually far cheaper than doubling what people spend. It is also the number businesses estimate most loosely, often by guessing a lifespan rather than measuring a churn rate. If one input deserves real measurement before you act on the output, it is this one.
This is a historic average, not a prediction for one customer
Every input here is an average across a customer base, so the output describes an average customer, and averages hide the shape of the distribution. Most businesses have a small group of customers worth many times the mean and a long tail worth almost nothing; an LTV of $682.50 may describe almost none of them. Cohort analysis — tracking each month's intake separately over time — is what tells you whether LTV is rising or falling, and no single-figure calculator can do it.
Limitations & Accuracy Notes
- No discounting. Profit arriving 3.5 years from now is counted at full face value, which overstates present value by roughly 19% at a 10% discount rate. See the table above to adjust.
- Takes lifespan rather than churn. If you measure churn, convert with lifespan = 1 ÷ churn before entering it — the conversion table is above.
- Constant churn assumed. Real retention curves are steepest early and flatten later, so a single lifespan figure fits subscription businesses better than one-off or seasonal purchase patterns.
- Gross margin only. It does not subtract support, success, fulfilment or ongoing service costs, so the profit LTV here is gross profit, not contribution after serving the customer.
- No expansion revenue. Upsells, cross-sells and price rises over a customer's life are not modeled, which understates LTV for businesses where accounts grow — the reason net revenue retention exists as a separate metric.
- CAC is taken as an input and not checked. A CAC that omits salaries, tooling or agency fees produces a flattering ratio from correct arithmetic.
- One segment at a time. Averaging across channels or customer types blends genuinely different economics into a single number; run it once per segment instead.
Frequently Asked Questions
What is Customer Lifetime Value (LTV)?
What is an optimal LTV to CAC ratio?
How is customer lifetime value calculated?
Why is LTV so sensitive to churn?
Should LTV use revenue or gross margin?
What is a good LTV to CAC ratio?
Can I calculate LTV for a young business?
Is my customer data stored?
References & Further Reading
- Harvard Business Review — The Value of Keeping the Right Customers — On the economics of retention against acquisition, and why churn is the highest-leverage input in the formula
- U.S. Small Business Administration — Marketing and sales guidance — Federal small-business guidance on tracking acquisition cost and marketing return