Customer Lifetime Value Calculator

Customer lifetime value helps businesses decide how much they can responsibly spend to acquire a customer. This calculator estimates LTV from average order value, purchase frequency, customer lifespan, and gross margin.

What this calculator does

Estimate customer lifetime value and gross profit value using purchase value, frequency, customer lifespan, and margin.

How to use it

Enter average order value, purchase frequency, customer lifespan, gross margin, and acquisition cost. The calculator estimates revenue LTV, gross profit LTV, LTV:CAC ratio, and payback signal.

Formula and assumptions

• Revenue LTV = average order value × purchase frequency × customer lifespan.
• Gross profit LTV = revenue LTV × gross margin.
• LTV:CAC = gross profit LTV ÷ customer acquisition cost.

Assumptions

• LTV models are only as accurate as the retention and purchase frequency assumptions.
• For service businesses, use average contract value or recurring revenue where applicable.
• Gross profit LTV is more useful than revenue LTV for marketing investment decisions.

Model details and limits

• The model multiplies average order value by purchases per year and customer lifespan in years. It assumes stable purchasing and margin and does not discount future cash flows or model changing retention cohorts.
• The LTV:CAC ratio uses gross-profit LTV rather than revenue LTV. The 3:1 target is a fixed planning assumption in this tool, not a universal profitability requirement; it leaves two-thirds of modeled gross profit before other operating costs. Zero CAC makes the ratio undefined.

Worked example

A $500 average order, two purchases per year and a three-year lifespan produce $3,000 revenue LTV. A 50% gross margin gives $1,500 gross-profit LTV. At $300 acquisition cost, the ratio is 5x and $1,200 remains before other costs. A 3:1 planning target permits $500 CAC.

Methodology references

• Stripe customer lifetime value calculation

How to interpret your result

A higher LTV gives marketing more room to work. If LTV:CAC is low, improve retention, pricing, margin, close rate, or lead quality before scaling spend aggressively.

Next steps

Plan growth around customer value