HomeFree toolsCustomer lifetime value calculator
Customer lifetime value calculator
Find out what an average customer is worth to you, in revenue and in gross profit, over the time they buy from you. Add your cost to acquire a customer and you get your LTV to CAC ratio too.
Worked example.
A Halifax coffee roaster sells beans online and wants to know what each new customer is worth.
- Average order value
- £28.00
- Orders per customer per year
- 5
- Years a customer stays
- 2
- Gross margin
- 60%
- Cost to acquire a customer (CAC)
- £45.00
Each customer is worth £280 in revenue and £168 in gross profit over their lifetime. Against a £45.00 CAC, that is an LTV to CAC ratio of 3.7 to 1, so a new customer brings back 3.7 times what it cost to win them.
How it works.
The maths and the rules behind the tool, so you can check it yourself.
Customer lifetime value (LTV) is the total a typical customer spends with you while they keep buying. The calculator multiplies your average order value by how many orders a customer places each year and by how many years they stay.
Revenue is not profit, so it then applies your gross margin to show the gross profit each customer brings in. This is the number to compare with what you spend to win a customer.
If you add your cost to acquire a customer (CAC), it divides gross profit LTV by CAC to give a ratio. Above 1 to 1, a customer earns back more than they cost to win. As a rough rule of thumb, many ecommerce brands aim for 3 to 1 or more.
Email marketing is a practical way to raise LTV, because welcome, post-purchase and win-back flows bring customers back to order again. Infinity sets up Klaviyo flows and campaigns as part of its email marketing service.
Tips.
Small changes that make the numbers more useful.
- Use real figures where you can. Your store's reports can show average order value and how often customers reorder, which beats a guess.
- Be careful with years a customer stays. If your business is young, use a shorter period, as it is easy to overestimate how long customers stick around.
- Work out CAC from all your acquisition costs, not just ad spend. Include first-order discounts and any creator or agency fees, then divide by the number of new customers they brought in.
- Raise LTV by working on each input: a second order sooner, bundles that lift order value, and post-purchase and win-back emails that bring customers back.
- Run the numbers for different groups of customers, such as those from different ad channels or first products. Some groups may be worth far more than others, which shows you where to spend.
Questions, answered.
What is customer lifetime value?
Customer lifetime value (LTV or CLV) is the total a customer is expected to spend with your business over the whole time they buy from you. It is often shown as revenue, but gross profit LTV is more useful when deciding how much you can spend to win a customer.
How do you calculate LTV?
A simple method is average order value × orders per year × years a customer stays. Multiply the result by your gross margin to get gross profit LTV. For example, £50 × 3 orders a year × 2 years is £300 in revenue, or £120 in gross profit at a 40% margin.
What is a good LTV to CAC ratio?
As a rough rule of thumb, many ecommerce brands aim for 3 to 1 or more, using gross profit LTV. Below 1 to 1 means you spend more to win a customer than they bring back. A very high ratio can be a sign you could afford to spend more on growth.
What is the difference between LTV and CAC?
LTV is what a customer is worth to you over time. CAC is what it costs to win one, usually your marketing and sales costs divided by the number of new customers. Comparing the two shows whether your marketing pays for itself.
How can I increase customer lifetime value?
Get customers to order more often, spend more per order or stay longer. Email flows such as welcome, post-purchase and win-back, along with subscriptions, bundles and good after-sales service, all help. Because the inputs multiply together, small gains in each one add up.
More free tools.
Related calculators and generators. All free tools
Automations and smart campaigns that sell on repeat.
Want help with the numbers?
Tell us what you need. Charlie will come back with a plan and a price, usually within one working day.