Cost Calculator AI
Business & StartupCustomer Economics

Customer Lifetime Value (LTV) Calculator

Calculate Customer Lifetime Value (LTV / CLV) based on average order value, purchase frequency, customer retention lifespan, and gross profit margins.

Purchase Behavior & Retention

Gross Margin & CAC Comparison

Customer Lifetime Value (LTV) Formulas

Lifetime Revenue = AOV × Purchase Frequency × Customer Lifespan; LTV (Gross Profit) = Lifetime Revenue × Gross Margin %; LTV:CAC Ratio = LTV / CAC
  • Average Order Value (AOV): Mean dollar value spent per transaction.
  • Purchase Frequency: Number of orders placed by an active customer per year.
  • Customer Lifespan: Average number of years a customer continues buying before churning.

Step-by-Step Worked Example

Scenario: An e-commerce business with $120 AOV, 3 purchases/yr, 4-year lifespan, 60% gross margin, and $200 CAC

Calculation Steps:

  1. Annual Customer Revenue = $120.00 × 3 = $360.00 / year
  2. Lifetime Customer Revenue = $360.00 × 4 = $1,440.00
  3. Customer Lifetime Value (LTV) = $1,440.00 × 0.60 = $864.00 gross profit
  4. LTV:CAC Ratio = $864.00 / $200.00 = 4.3 : 1 (Healthy)
Result: LTV is $864.00 in gross profit ($1,440 lifetime revenue), delivering a healthy 4.3x return on a $200 acquisition cost.

How to Use This Calculator

  1. 1Enter average purchase value per transaction.
  2. 2Input the average number of orders a customer completes per year.
  3. 3Specify expected customer retention duration in years and gross margin percentage.
  4. 4Optionally enter Customer Acquisition Cost (CAC) to evaluate the LTV:CAC ratio.

Assumptions & Limitations

  • LTV is calculated using gross profit rather than raw revenue to reflect true cash contribution.
  • Customer churn rate is assumed steady across the lifespan period.

Frequently Asked Questions

Why should LTV be calculated on gross profit rather than revenue?

Calculating LTV on revenue ignores product costs. If a customer generates $1,000 in revenue but costs $900 to fulfill, their real lifetime value is only $100, not $1,000.

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