Customer Lifetime Value Calculator
Lifetime value is what an average customer is worth across the whole relationship, not just the first sale. It is the number that decides how much you can afford to spend winning one.
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Formula
LTV = Average order value × Purchases per year × Years retained × Gross margin
Worked example
A $180 order, three times a year, for 2.5 years at 45% margin is $1,350 of lifetime revenue and $607 of lifetime value — supporting an acquisition cost up to about $202.
What's a good number?
There is no good or bad lifetime value in isolation; it is only meaningful next to acquisition cost. What matters is that most businesses badly underestimate it by looking only at the first purchase, then conclude advertising is too expensive. If you sell anything repeatable — services, consumables, subscriptions — the first sale is rarely where the money is.
Questions
- Should I use revenue or profit for LTV?
- Profit. Comparing revenue-based lifetime value to acquisition cost makes the business look far healthier than it is, because it ignores the cost of actually delivering the product.
- I'm a new business with no retention data. What do I use?
- Estimate conservatively and revisit. Use one year of retention rather than a hopeful five, and update once you have real repeat-purchase data. An optimistic lifetime value is the most common way businesses justify overspending on acquisition.
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