Customer Lifetime Value (LTV) Calculator

Customer lifetime value (LTV) answers one of the most important questions in any business: how much is a customer worth over time? The answer determines how much you can afford to spend acquiring one. The basic formula multiplies average purchase value by purchase frequency by the number of years a customer stays. That gives revenue LTV. Applying your gross margin percentage gives the profit version, which is what actually matters for sustainability. The LTV:CAC ratio is the key benchmark. A 3:1 ratio (LTV is 3 times the cost to acquire the customer) is often cited as healthy for SaaS and e-commerce businesses. Below 1:1, you are losing money on every customer you acquire.

• Setting a maximum CAC for paid acquisition: If your LTV:CAC target is 3:1 and your LTV is $900, your maximum allowable CAC is $300. Use this to set bids, CPL targets, and marketing budget limits across channels.
• Evaluating a new marketing channel: A new channel costs $150 per acquired customer. With an LTV of $1,080, that is a 7.2:1 ratio. Compare this to your existing channels to decide whether to scale it.
• Forecasting revenue from a cohort: If you acquire 100 new customers this quarter at $120 average purchase, 3 purchases per year, and 3 year lifespan, the cohort LTV is $108,000. Build that into revenue projections.
• Pricing subscription tiers: Different subscription tiers have different LTVs based on price, churn, and upsell potential. Calculate LTV per tier to inform where to invest in retention and expansion programs.

• Using revenue LTV instead of gross margin LTV for CAC decisions: A $1,000 LTV with a 30% gross margin only generates $300 in profit. If your CAC is $400, you are losing money on every customer even though the LTV:CAC revenue ratio looks fine. Always use gross margin LTV for acquisition decisions.
• Overestimating customer lifespan: New businesses often project optimistic retention without data to support it. Use actual cohort data when available. If your business is less than 2 years old, be conservative with lifespan estimates.
• Not segmenting LTV by customer type: Averaging all customers into one LTV hides the fact that some segments are worth 5x others. Segment by acquisition channel, product tier, or geographic market to make better allocation decisions.
• Ignoring the cost of retention and service: LTV calculations often include only CAC. Customer service costs, loyalty program costs, and account management costs reduce the net value of a customer relationship. Factor these into the gross margin figure.

1. 1Enter the average amount a customer spends per transaction.
2. 2Enter how many times the average customer purchases per year.
3. 3Enter the average number of years a customer stays with the business.
4. 4The calculator multiplies all three to get revenue LTV.
5. 5Enter your gross margin percentage to see the profit-adjusted LTV.
6. 6Enter your CAC (cost to acquire a customer) to see the LTV:CAC ratio and payback period.

• Target a 3:1 LTV:CAC ratio as a baseline: A ratio below 1:1 means you lose money on every customer. Between 1:1 and 3:1, growth may work but margins are thin. At 3:1 or above, you have room for sustainable paid acquisition. Ratios above 5:1 may indicate underinvestment in growth.
• Measure LTV by cohort, not by averages: Track customers acquired in the same month or quarter together. Cohort LTV shows whether your customers are getting more or less valuable over time, which a single average obscures.
• Reduce payback period by improving onboarding: A customer who activates faster makes their first repeat purchase sooner. Better onboarding reduces payback period without touching CAC or LTV directly.
• Update LTV quarterly as you gather more data: As your business matures, use actual customer retention and purchase data to update your LTV model. Early-stage estimates should lean conservative. Let data replace assumptions as they become available.