Customer lifetime value calculator
Enter average order value, purchases per year, customer lifespan (or annual churn rate) and gross margin and this customer lifetime value calculator shows how much gross profit a customer brings over the whole relationship. Add marketing spend and new customers to get customer acquisition cost (CAC), the LTV:CAC ratio and the months until payback.
Example: Average order value 50 · Purchases per customer per year 4 · Enter customer lifespan as: Customer lifespan in years · Customer lifespan 3 years · Gross margin 40 % · Marketing spend (optional) 6,000 · New customers acquired (optional) 200 → Customer lifetime value (gross profit): 240.00. Source: Shopify: What Is Customer Lifetime Value? – average order value × purchase frequency × customer lifespan. Updated: .
How it is calculated
Customer lifetime value: the simple formula
Customer lifetime value (CLV, also LTV) estimates what a customer is worth over the entire relationship. The common simple customer lifetime value calculation formula, as described by Shopify, for example:
How to calculate customer lifetime value
- Enter average order value and purchases per customer per year.
- Enter the customer lifespan directly or via the annual churn rate, plus gross margin.
- Optionally add marketing spend and new customers to see CAC and the LTV:CAC ratio.
Revenue per customer = average order value × purchases per year × lifespan in years
CLV (gross profit) = revenue per customer × gross margin
Customer lifetime value calculation example: customers spend 50 per order on average, four times a year, for three years. That is 50 × 4 × 3 = 600 in revenue. At a 40% gross margin, 240 in gross profit remains – the amount available to cover advertising and fixed costs. For decisions about marketing budgets this figure tells you more than revenue.
Important: this calculation is not discounted. It treats money received in three years like money today and assumes that order value, purchase frequency and margin stay constant. For long customer relationships or high interest rates it overstates what a customer is worth today.
Customer lifespan from the churn rate
If you know the annual churn rate instead of the lifespan, lifespan = 1 ÷ churn. With 25% churn per year, a customer stays 1 ÷ 0.25 = 4 years on average; the CLV in the example then rises to 50 × 4 × 4 × 40% = 320. The formula assumes that the same share of the remaining customers churns every year.
CAC: cost per new customer
CAC = marketing spend ÷ number of new customers in the same period. 6,000 in marketing for 200 new customers is 30 per customer. Include all costs of acquiring them – advertising, but also agency or software costs, for example.
LTV:CAC ratio and payback period
- LTV:CAC = CLV ÷ CAC. In the example 240 ÷ 30 = 8: a customer brings in eight times as much gross profit as it cost to acquire them. Below 1, every new customer costs more than they bring in.
- Payback in months = CAC ÷ (gross profit per year ÷ 12). A customer brings 50 × 4 × 40% = 80 in gross profit per year, 6.67 per month. The 30 CAC is earned back after 30 ÷ 6.67 = 4.5 months.
How high the LTV:CAC ratio should be depends on fixed costs, capital needs and growth goals, so the calculator deliberately gives no target. The payback period shows how long you have to pre-finance the acquisition cost.
More marketing calculators: ad returns with the ROAS calculator, the conversion rate calculator and the break-even calculator.
Frequently asked questions
How do you calculate customer lifetime value?
Average order value × purchases per year × lifespan in years gives revenue per customer; multiplied by gross margin, that is the CLV on a gross-profit basis. 50 × 4 × 3 × 40% = 240.
What is the difference between CLV and LTV?
None – both abbreviations mean customer lifetime value. What matters more is whether it is calculated on revenue or on gross profit (after margin); the calculator shows both.
How do I calculate customer lifespan from the churn rate?
Lifespan = 1 ÷ annual churn rate. At 20% churn it is 5 years, at 25% it is 4 years. With a monthly churn rate, the same formula gives the lifespan in months.
What is the LTV:CAC formula, and how is CAC calculated?
CAC is the marketing spend on acquiring new customers divided by the number of new customers in the same period: 6,000 ÷ 200 = 30. The LTV:CAC ratio is CLV ÷ CAC, in the example 240 ÷ 30 = 8.
Is customer lifetime value discounted here?
No. The calculator uses the simple, non-discounted formula. Future gross profit is not converted to today’s value with an interest rate – for long customer relationships the discounted value is lower.
Sources and legal basis
- Shopify: What Is Customer Lifetime Value? – average order value × purchase frequency × customer lifespan
- Shopify: Customer Acquisition Cost – CLV × gross margin, CLV ÷ CAC
- Amazon Ads: What is customer acquisition? – CAC = marketing spend ÷ new customers
As of: · Editorial policy
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