Customer Lifetime Value Calculator

What LTV actually measures

Customer Lifetime Value (LTV) is the total gross profit a customer generates over their relationship with your business. Not revenue — profit. This distinction matters: a customer who spends $1,000 but only leaves you $100 of margin after costs has an LTV of $100, not $1,000.

LTV sets your acquisition ceiling. If your LTV is $90, you can afford to spend up to $30 per customer at a healthy 3:1 LTV:CAC ratio. Spend $50 and you lose money per customer — no matter how many you acquire.

The formula

• LTV = AOV × purchases per year × lifespan (years) × gross margin
• LTV:CAC ratio = LTV ÷ CAC
• Max affordable CAC = LTV ÷ target ratio
• Payback period (months) = CAC ÷ (monthly gross profit per customer)
• Monthly gross profit per customer = AOV × (purchases per year ÷ 12) × gross margin

How to read the LTV:CAC ratio

• Below 1:1 — Losing money on every customer. Stop acquiring. Fix unit economics first.
• 1:1 to 2:1 — Thin. Sustainable only if you have strong cashflow or the CAC includes a big portion of fixed costs you'd pay anyway.
• 3:1 — The standard healthy target for most e-commerce and SaaS businesses.
• 4:1+ — Very healthy, or you're underinvesting in growth.
• Above 8:1 — Usually means you're not spending enough on acquisition. Growth is being left on the table.

Worked example

AOV $60, 2 purchases per year, 3-year lifespan, 60% gross margin, CAC $40.

• LTV = $60 × 2 × 3 × 0.60 = $216
• LTV:CAC = $216 ÷ $40 = 5.4:1
• Max affordable CAC at 3:1 = $216 ÷ 3 = $72
• Monthly gross profit per customer = $60 × (2/12) × 0.60 = $6
• Payback period = $40 ÷ $6 = 6.7 months

This is a strong profile. You could spend up to $72 per customer and still maintain a 3:1 ratio. You're currently spending $40 — underinvesting by ~$32 per customer.

What actually moves LTV

1. Retention. Increasing lifespan from 3 to 4 years adds 33% to LTV without touching AOV or margin.
2. Purchase frequency. Subscriptions, refills, and replenishment reminders raise frequency.
3. Average order value. Bundles, upsells, cross-sells raise AOV. Even a 10% lift compounds across the full lifespan.
4. Gross margin. Better sourcing, higher price, lower shipping costs. Harder to move but permanent.

Common mistakes

• Using revenue instead of gross profit. LTV should be profit-based. Otherwise you overstate how much you can afford to spend.
• Assuming an inflated lifespan. Most e-commerce customers buy once. Repeat rates are often lower than expected.
• Ignoring returns. Refunded orders don't count. Model returns as a deduction from LTV.
• Counting revenue from paid traffic only. LTV is per-customer, regardless of source.
• Forgetting to include non-ad CAC. If a founder spends 20 hours per week on sales, that time is part of CAC.

What this tool does not include

• Discount rate (future profit valued less than today's)
• Cohort-level breakdowns
• Referral or virality effects
• Churn curves (for subscription models)
• Seasonality

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