Customer lifetime value calculator
Enter average order value, purchases per year, customer lifespan (or annual churn rate) and gross margin to see 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.
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:
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 a dollar in three years like a dollar 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.
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:
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