Customer Lifetime Value Calculator

Understanding Customer Lifetime Value (CLTV / LTV)

Customer Lifetime Value (CLTV or LTV) measures the total gross profit or revenue a business can reasonably expect from a single customer throughout their entire business relationship. Understanding LTV enables companies to determine appropriate Customer Acquisition Costs (CAC), evaluate retention efforts, and optimize long-term profitability.

How to Calculate Customer Lifetime Value

The calculation method for LTV varies depending on whether your company operates a repeat purchase e-commerce model or a recurring subscription model.

1. E-Commerce & Retail Model Formula

For businesses driven by repeat purchases, LTV is computed using Average Order Value ($AOV$), Purchase Frequency ($F$), Average Lifespan ($t$), and Profit Margin ($M$):

$$\text{Annual Customer Value} = AOV \times F$$

$$\text{Gross CLTV} = AOV \times F \times t \times \left( \frac{M}{100} \right)$$

2. SaaS & Subscription Model Formula

For subscription businesses, customer lifespan is inversely related to monthly churn rate ($c$). Pair this with Churn Rate Calculator for accurate churn metrics:

$$\text{Average Customer Lifespan (Months)} = \frac{1}{c / 100}$$

$$\text{Gross CLTV} = \frac{ARPU \times (M / 100)}{c / 100}$$

Evaluating the LTV:CAC Ratio

Comparing LTV to Customer Acquisition Cost (CAC) provides insight into business scalability:

• LTV:CAC < 1.0: Losing money on every acquired customer.
• LTV:CAC = 3.0: Industry benchmark for healthy, scalable subscription growth.
• LTV:CAC > 5.0: High efficiency, but may indicate under-investing in marketing acquisition opportunities.