Customer Lifetime Value (LTV) Calculator

Customer lifetime value estimates the total gross profit a business can expect from a single customer for as long as they keep buying — not just their first purchase. It's one of the most useful numbers for deciding how much a business can reasonably afford to spend acquiring a customer in the first place, which is exactly why it's almost always discussed alongside CAC (customer acquisition cost). If LTV sits well above CAC, growth spending tends to pay for itself over time; if the gap between the two is thin, growth can quietly become unprofitable even while headline revenue keeps climbing.

LTV is also a useful lens for prioritizing where to invest — improving retention among an existing high-value customer segment can raise total LTV more cost-effectively than pursuing an entirely new customer segment, since the acquisition cost for existing relationships is already sunk.

Of the four inputs that go into this calculation, small improvements in retention (customer lifespan) and purchase frequency tend to compound more powerfully than raising average order value alone, since they affect how many total transactions a customer contributes over their entire relationship with the business, not just the size of any single transaction. Extending average customer lifespan by even a single additional year can move lifetime value substantially more than a proportional increase in order size, because that extra year of retention captures an entire additional cycle of purchases at the existing frequency and order value.

This is part of why many subscription and recurring-revenue businesses invest heavily in retention and customer success functions specifically — a modest reduction in churn rate, compounded across an entire customer base over time, often produces a larger total impact on LTV than an equivalent percentage increase in new customer acquisition.

• Average Order Value (AOV) — the typical amount a customer spends per individual transaction.
• Purchase frequency — how many times per year the average customer makes a purchase.
• Gross margin — the percentage of revenue retained as profit after the direct cost of goods sold.
• Customer lifespan — how many years, on average, a customer continues buying before churning entirely.

A $60 average order, shipped 4 times a year, at a 55% gross margin, retained for 3 years:

If this business's average customer stayed subscribed for 4 years instead of 3, LTV would rise to $528 — a 33% increase purely from one additional year of retention, without changing the order value, purchase frequency, or margin at all.

• Using revenue instead of gross margin — overstates true customer value by ignoring the cost of goods sold.
• Ignoring churn and lifespan variability — a single average lifespan figure can hide very different behavior across customer segments.
• Not discounting future value to present terms — a simplification this calculator also makes, worth noting for more advanced financial analysis.