Customer Lifetime Value Calculator
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Customer lifetime value is the gross profit you expect from a customer over the whole relationship. A customer who spends $60 four times a year for 3 years at a 40% margin is worth $288 in profit. If you paid $70 to win them, the LTV:CAC ratio is about 4.1 to 1.
Share of customers lost each year. Lifespan = 1 ÷ churn.
| Customer value | |
| Revenue per year | $240.00 |
| Gross profit per year | $96.00 |
| Lifespan | 3 years |
| Lifetime revenue | $720.00 |
| Customer lifetime value (profit) | $288.00 |
| Acquisition | |
| LTV:CAC ratio | 4.11 : 1 |
| Months to earn back CAC | 8.8 |
| Profit after CAC | $218.00 |
Show steps
- Yearly revenue = $60.00 x 4 = $240.00.
- CLV = $240.00 x 40% x 3 = $288.00.
- LTV:CAC = $288.00 / $70.00 = 4.11.
- CAC payback = $70.00 / ($96.00 / 12) = 8.8 months.
How to use the customer lifetime value calculator
- Enter the average order value and how many times a customer buys in a year.
- Enter your gross margin, so the result is profit, not sales.
- Enter how long customers stay, or your yearly churn rate.
- Add your customer acquisition cost (CAC) to see the LTV:CAC ratio and payback time.
Customer lifetime value formula
- Yearly revenue per customer = average order value × purchases per year
- CLV = yearly revenue × gross margin × lifespan
- Lifespan = 1 ÷ churn rate, when you know churn instead
- LTV:CAC = CLV ÷ customer acquisition cost
- CAC payback (months) = CAC ÷ monthly gross profit per customer
Some people report CLV as lifetime revenue (without the margin). The calculator shows both, but profit-based CLV is the one to compare with acquisition cost.
Worked example
| Step | Work | Result |
|---|---|---|
| Revenue per year | $60 × 4 | $240 |
| Gross profit per year | 240 × 0.40 | $96 |
| CLV over 3 years | 96 × 3 | $288 |
| LTV:CAC with $70 CAC | 288 ÷ 70 | 4.11 : 1 |
| Months to earn back CAC | 70 ÷ (96 ÷ 12) | 8.75 months |
Churn and lifespan
If you lose a fixed share of customers each year, the average customer stays 1 ÷ churn years. 25% churn means 4 years on average; 50% churn means 2 years. Cutting churn from 30% to 20% raises lifespan from 3.33 to 5 years, a 50% jump in lifetime value.
| Yearly churn | Average lifespan |
|---|---|
| 10% | 10 years |
| 20% | 5 years |
| 25% | 4 years |
| 33.3% | 3 years |
| 50% | 2 years |
Common mistakes
- Using revenue instead of profit when comparing with acquisition cost.
- Mixing monthly and yearly numbers. Keep purchases, churn and lifespan in the same time unit.
- Ignoring discounting. Profit in year 5 is worth less than profit today; for long lifespans, discount future years.
Customer lifetime value practice quiz: 10 questions
Test yourself with 10 multiple-choice questions. Choose an answer and press Submit to see if you are right and why. Your score appears at the end.
Lifespan = 1 ÷ churn: 1 ÷ 0.5 = 2 years, 1 ÷ 0.25 = 4 years. Halving churn doubles lifespan.
Revenue includes the cost of the product. Multiplying by gross margin gives the profit a customer actually contributes.
Quiz complete
Frequently asked questions
How do you calculate customer lifetime value?
Multiply average order value by purchases per year to get yearly revenue, multiply by gross margin to get yearly profit, then multiply by the number of years a customer stays.
What is a good LTV to CAC ratio?
A common rule of thumb is 3 to 1 or better. Below 1 to 1 you lose money on each new customer; far above 5 to 1 can mean you are underinvesting in growth.
How do I get customer lifespan from churn?
Divide 1 by the churn rate for the same period. With 20% yearly churn, customers stay 1 ÷ 0.20 = 5 years on average.
Is CLV based on revenue or profit?
Both versions are used. Revenue-based CLV is larger; profit-based CLV, using gross margin, is the right one to compare with acquisition costs.
What is CAC payback?
The number of months of gross profit from a customer needed to cover what you spent to acquire them.
Sources
- U.S. Small Business Administration: Market research and competitive analysis
- Harvard Business School Online: What is customer lifetime value?
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