LTV Calculator: Customer Lifetime Value

How the LTV Calculator works

Customer lifetime value tells you how much revenue one customer brings across every order they place, not just the first one. The values model multiplies your AOV by purchase frequency, which is total orders divided by total customers over the period you look at. LTV profit then removes acquisition cost once and product costs on every order.

The gross margin model runs the same idea from the margin side: profit on the first purchase is AOV times your gross margin minus CAC, and LTV profit applies that margin to the full lifetime revenue. Use it when you know your margin percentage better than your per-order costs.

A healthy benchmark for ecommerce is an LTV to CAC ratio of 3:1 or better. Under 2:1 you are paying too much for growth, and well above 3:1 you can usually afford to spend more aggressively on acquisition.

What customer lifetime value tells you

Customer lifetime value (LTV) is the revenue one customer brings in across all their orders. Judge only the first order and the most you can pay to win a customer is the profit on that one order. Repeat buyers raise that limit, and LTV shows by how much. Use it to set a CAC target for paid ads or to check whether a first-order discount pays off over later orders.

How to use this customer lifetime value calculator

In LTV using values, enter Total Orders and Total Customers from the same period, such as the last 12 months. The calculator divides orders by customers to get Purchase Frequency, unless you type your own number into Average Purchase Frequency. Then add Average Order Value (AOV), Customer Acquisition Cost (CAC) and COGS per Order.

LTV using gross margin runs the same math from your Gross margin %. Leave its Purchase Frequency field empty and it reuses the frequency from the first section.

Worked example

Example numbers, not client data: 1,500 orders from 1,000 customers, AOV 120, CAC 40 and COGS per order 35. Purchase Frequency is 1,500 / 1,000 = 1.50. Customer LTV is 120 x 1.50 = 180.00. Profit on First Purchase is 120 - 40 - 35 = 45.00. LTV Profit is 180 - 40 - (35 x 1.50) = 87.50, and the LTV : CAC Ratio is 180 / 40 = 4.50.

In the gross margin model, AOV 100, Gross margin % 70, CAC 30 and a frequency of 1.50 give 40.00 profit on the first purchase, 150.00 LTV, 75.00 LTV profit and a ratio of 5.00.

How to read the result

The LTV : CAC Ratio uses revenue LTV, not profit, so it can hide a margin problem. In the example above, raise COGS per order to 100 and the ratio stays at 4.50 while LTV Profit falls to -10.00. The ratio tile turns green at 3 and above, amber from 2 up to 3 and red below 2.

Frequency depends on the window you pick. One month of orders usually shows fewer repeat purchases than a full year, because repeat orders take time to arrive. Use the same window every time you compare, and count only customers who placed at least one order.

LTV Calculator FAQ