How to use this calculator
- Enter the Average order value and Orders per year for a typical customer.
- Set Years as a customer and your Gross margin.
- Enter the Cost to acquire a customer (marketing and sales spend divided by new customers).
- Read the Customer lifetime value, the LTV to CAC ratio and the months to recover acquisition cost.
How lifetime value is calculated
Lifetime revenue is the order value multiplied by orders per year and the number of years. Multiplying by gross margin turns revenue into the profit you keep before overhead. Subtracting acquisition cost shows what is left after winning the customer.
LTV = Order value × Orders per year × Years × Margin ÷ 100- Order value = average spend per order
- Orders per year = purchase frequency
- Years = expected customer lifespan
- LTV ÷ CAC = lifetime value per dollar spent on acquisition
This is a simple, margin-based version. It does not discount future profit or model customers leaving, so use it for comparing scenarios rather than precise valuation.
Example: a store with repeat buyers
A customer spends $60 per order, orders four times a year and stays for three years. Lifetime revenue is $720. With a 45% margin, lifetime value is $324.
If acquiring that customer costs $80, the LTV to CAC ratio is 4.05x, profit after acquisition is $244 and the cost is recovered in about 8.9 months. At a cost of $300, the ratio drops to 1.08x and payback stretches to 33 months, leaving only $24 of profit.
Interpreting LTV to CAC
A ratio below 1 means you lose money on every customer. Near 1, there is nothing left for overhead. Many businesses look for roughly 3x or more as a rule of thumb, but this depends on your margins, growth stage and cash position.
Payback time matters as much as the ratio. A strong ratio that takes three years to recover can still strain cash. Compare with your ad results in the ROAS calculator and check runway with the runway calculator.
How to raise customer lifetime value
- Improve retention: follow-up emails, loyalty offers and better service keep customers longer.
- Increase order frequency with subscriptions or replenishment reminders.
- Raise average order value with bundles and upsells.
- Lower acquisition cost through referrals and organic channels.
- Improve margin by reducing product, shipping and support costs.
Assumptions and limits
The calculator treats every customer as the average one and assumes they stay exactly as long as you enter. Real customers differ widely, and many leave early. It does not discount future profit, include returns, support costs or taxes, or separate customer groups. Use data from actual cohorts when you have it, and be cautious with a lifespan you have not yet observed. See also the profit margin calculator when checking the margin figure.
Frequently asked questions
How do I calculate customer lifetime value?
Multiply average order value, orders per year and years as a customer, then multiply by gross margin to get profit rather than revenue.
What is a good LTV to CAC ratio?
A common rule of thumb is 3 to 1 or higher, though the right level depends on margins, growth goals and how quickly you recover the cost.
What is CAC?
Customer acquisition cost is the total sales and marketing spend in a period divided by the number of new customers won in it.
Should LTV use revenue or profit?
Profit. Revenue-based LTV overstates the value of a customer because it ignores the cost of what you sell.
How long should I assume customers stay?
Use observed data, such as how long past customers kept buying. A guessed number can make results look better than they are.