Does this include churn or discounting explicitly?

Churn is captured indirectly through the retention years input. If you want to reflect heavy discounting or promotional activity, reduce AOV or margin so the LTV reflects post‑discount economics rather than list prices.

Should I use gross or contribution margin?

Contribution margin is usually better for LTV because it accounts for variable costs like payment processing, shipping, and per‑order support. If you use gross margin instead, treat the result as an upper bound on LTV.

Is an LTV:CAC of 3:1 still a good target?

3:1 is a common rule of thumb, but the right target depends on your payback period, risk tolerance, and access to capital. Capital‑constrained teams may need higher ratios or faster payback to stay healthy.

Can I use this for SaaS or subscriptions?

Yes. Treat AOV as average revenue per billing period and purchases/year as billing frequency (for example, 12 for monthly billing). For more detailed SaaS modeling, pair this with churn‑based or MRR‑based LTV calculations.

How often should I update my LTV assumptions?

Update your model whenever you change pricing, packaging, discounts, or acquisition mix in a material way, and at least quarterly as new cohorts mature. LTV is not a fixed constant; it evolves as your business and customers change.

finance calculator

Customer LTV Calculator

Estimate lifetime value, gross profit, and LTV:CAC using order value, margin, and retention.

Results

Annual revenue: $240 USD
Lifetime revenue: $720 USD
Lifetime gross profit: $432 USD
LTV (gross profit): $432 USD
LTV : CAC: 8.64

Overview

Customer lifetime value (LTV) is the backbone of paid growth math: it tells you how much gross profit you can reasonably expect to earn from an average customer over the life of your relationship. When you compare that LTV to your customer acquisition cost (CAC), you get a simple LTV:CAC ratio that makes it easier to decide how aggressively you can spend on marketing and sales.

This customer LTV calculator uses an order‑based, intuitive model. You enter average order value (AOV), gross or contribution margin, how many purchases a typical customer makes per year, how many years they tend to stay active, and your blended CAC. The tool then calculates annual revenue, lifetime revenue, lifetime gross profit (your LTV), and an LTV:CAC ratio so you can quickly see whether your unit economics look healthy, fragile, or upside‑down.

How to use this calculator

Enter your average order value (AOV) for the customers or segment you are analyzing. Use net revenue per order after discounts, refunds, and taxes where possible.
Enter your gross or contribution margin percentage. Contribution margin (after COGS, payment fees, and variable fulfillment costs) makes the LTV estimate more realistic.
Enter the average number of purchases each active customer makes per year. For subscriptions, treat each billing event as a “purchase.”
Enter expected retention in years—how long customers tend to stay active before churning. Use cohort data where available; otherwise, start conservatively and adjust as data matures.
Enter your blended CAC, including media spend, sales compensation, and other acquisition expenses allocated on a per‑customer basis.
Review the resulting annual revenue, lifetime revenue, lifetime gross profit, and LTV:CAC ratio. Adjust AOV, margin, frequency, retention, or CAC to explore conservative, base, and aggressive scenarios.

Inputs explained

Average order value (AOV): Average revenue per order across the customers or cohort you are modeling. Use net revenue (after discounts and refunds) rather than list price so that LTV is anchored in real cash collected.
Gross margin %: Gross or contribution margin as a percentage of revenue. If possible, use contribution margin that subtracts variable costs like cost of goods, payment processing, shipping subsidies, and per‑order support costs.
Purchases per year: Average number of orders or billing events each customer completes in a year. For monthly subscriptions, this is typically 12; for ecommerce, it might be 2–6 depending on your category.
Retention (years): The expected length of the customer relationship measured in years. It approximates how long a customer remains active before they stop ordering. You can derive this from cohort retention curves or infer it from annual churn rates.
CAC: Blended customer acquisition cost per new customer, including paid marketing, sales commissions, agency fees, and other acquisition‑related expenses. You can also plug in channel‑specific CAC to compare LTV:CAC across channels.

How it works

We start by converting customer behavior into revenue. Annual revenue per customer is computed as Average order value × Purchases per year. This captures both basket size and purchase frequency in one number.

Next, we extend that annual revenue over the length of the relationship. Lifetime revenue ≈ Annual revenue × Retention years, assuming that purchasing patterns and pricing remain reasonably stable for that customer cohort.

Because revenue alone does not pay the bills, we focus on gross profit. Lifetime gross profit = Lifetime revenue × (Gross margin % ÷ 100). If you input contribution margin instead of simple gross margin, this value approximates the dollars you have available to fund acquisition, overhead, and profit.

In this simplified model, we treat lifetime gross profit as LTV: LTV (gross profit) = Lifetime gross profit. This aligns with how most growth teams think about LTV when setting CAC targets.

Customer acquisition cost (CAC) is entered as a single blended figure that includes paid media, sales commissions, referral fees, and other acquisition‑related spending. The LTV:CAC ratio is then computed as LTV ÷ CAC.

Teams commonly use rules of thumb like “3:1 LTV:CAC is healthy” or “1:1 is break‑even,” but the right target depends on your payback period requirements and cash constraints. The calculator intentionally keeps the math transparent so you can apply your own thresholds.

Formula

Annual revenue per customer = AOV × Purchases per year
Lifetime revenue ≈ Annual revenue × Retention years
Lifetime gross profit (LTV) = Lifetime revenue × (Gross margin % ÷ 100)
LTV:CAC ratio = Lifetime gross profit ÷ CAC

When to use it

Assessing DTC or ecommerce unit economics before ramping ad spend on paid search, paid social, or influencer campaigns.
Comparing cohort performance by adjusting purchase frequency, retention years, or AOV for different signup months, geographies, or acquisition channels.
Checking whether your LTV:CAC ratio meets internal, board, or fundraising targets and whether there is room to increase CAC to gain market share.
Translating retention or loyalty initiatives (like subscriptions, memberships, or rewards programs) into projected LTV uplift by increasing purchases per year or relationship length.
Setting CAC and bid caps for performance marketing by working backward from target LTV:CAC and acceptable payback periods.
Helping non‑finance stakeholders—like marketing, product, or design—see how pricing, discounting, and engagement changes affect long‑term unit economics.

Tips & cautions

Use contribution margin rather than high‑level gross margin when you can; ignoring variable costs tends to overstate LTV and encourage overspending on acquisition.
Translate churn into retention years when needed. For example, an annual churn rate of 20% corresponds to an average lifetime of roughly 1 ÷ 0.20 = 5 years, assuming a constant churn rate.
Align your purchase frequency input with the retention horizon. If your retention is in years, make sure purchases per year reflects the same time unit to avoid double‑counting or under‑counting orders.
Model multiple scenarios—conservative, base, and aggressive—by tweaking AOV, margin, retention, and frequency. Use the conservative scenario when setting hard CAC caps to protect downside.
Revisit your LTV assumptions regularly as you change pricing, introduce new products, or move into new channels. Early cohorts often behave differently from mature, more saturated cohorts.
Remember that LTV is an average; high‑value customers may justify higher CAC than the blended figure suggests. Consider separate models for VIPs, subscribers, or enterprise buyers.
Static snapshot model—it does not discount future cash flows or account for the timing of revenue relative to acquisition, which can be important for payback and cash‑flow planning.
Assumes average behavior; real cohorts vary by channel, seasonality, and customer segment, so actual LTV may differ meaningfully from this blended estimate.
Uses a single retention number rather than a full churn curve; businesses with pronounced early‑life churn should use this as a high‑level guide only.
Focuses on gross profit and CAC; it does not include fixed costs, R&D, overhead, or long‑term strategic investments in its LTV figure.
Does not automatically separate new vs returning customer behavior. If your product has strong one‑time vs repeat‑buyer dynamics, consider modeling those groups separately.

Worked examples

High-margin repeat customer

AOV = $60, margin = 60%, purchases/year = 4, retention = 3 years, CAC = $50.
Annual revenue = 60 × 4 = $240; lifetime revenue = 240 × 3 = $720.
Lifetime gross profit (LTV) = 720 × 0.60 = $432.
LTV:CAC ≈ 432 ÷ 50 ≈ 8.6×, indicating very strong unit economics and room to scale acquisition spend.

Lower-frequency, lower-margin product

AOV = $40, margin = 50%, purchases/year = 2, retention = 2 years, CAC = $30.
Annual revenue = 40 × 2 = $80; lifetime revenue = 80 × 2 = $160.
Lifetime gross profit (LTV) = 160 × 0.50 = $80.
LTV:CAC ≈ 80 ÷ 30 ≈ 2.67×, which may be acceptable depending on payback period and overhead requirements.

Subscription-style behavior mapped to orders

Treat a monthly plan as AOV = $25 per billing, margin = 70%, purchases/year = 12, retention = 2.5 years, CAC = $120.
Annual revenue = 25 × 12 = $300; lifetime revenue = 300 × 2.5 = $750.
Lifetime gross profit (LTV) = 750 × 0.70 = $525.
LTV:CAC ≈ 525 ÷ 120 ≈ 4.38×, a healthy ratio that likely supports additional growth investment.

Deep dive

This customer LTV calculator multiplies average order value, purchase frequency, retention, and margin to estimate lifetime revenue, lifetime gross profit, and LTV:CAC so you can understand your unit economics in one place.

Enter your AOV, gross or contribution margin, typical orders per year, expected customer lifetime in years, and blended CAC. The tool returns annual revenue, lifetime revenue, lifetime gross profit (LTV), and an LTV:CAC ratio you can use to benchmark channels and set sustainable CAC targets.

Because it focuses on profit rather than just revenue, this LTV model helps you avoid over‑estimating what a customer is worth and accidentally overspending on acquisition. You can quickly test how much impact improvements in retention, basket size, or margin would have on LTV.

Growth, marketing, and finance teams can use the calculator during campaign planning, budgeting, and board prep to show how current unit economics support (or limit) further investment. Founders can use it to sanity‑check whether their business model can support paid acquisition at scale before turning on big budgets.

FAQs

Does this include churn or discounting explicitly?: Churn is captured indirectly through the retention years input. If you want to reflect heavy discounting or promotional activity, reduce AOV or margin so the LTV reflects post‑discount economics rather than list prices.
Should I use gross or contribution margin?: Contribution margin is usually better for LTV because it accounts for variable costs like payment processing, shipping, and per‑order support. If you use gross margin instead, treat the result as an upper bound on LTV.
Is an LTV:CAC of 3:1 still a good target?: 3:1 is a common rule of thumb, but the right target depends on your payback period, risk tolerance, and access to capital. Capital‑constrained teams may need higher ratios or faster payback to stay healthy.
Can I use this for SaaS or subscriptions?: Yes. Treat AOV as average revenue per billing period and purchases/year as billing frequency (for example, 12 for monthly billing). For more detailed SaaS modeling, pair this with churn‑based or MRR‑based LTV calculations.
How often should I update my LTV assumptions?: Update your model whenever you change pricing, packaging, discounts, or acquisition mix in a material way, and at least quarterly as new cohorts mature. LTV is not a fixed constant; it evolves as your business and customers change.

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This customer LTV calculator provides simplified, assumption‑driven estimates of lifetime gross profit and LTV:CAC. It does not discount future cash flows, guarantee that historical cohorts will behave the same in the future, or replace detailed financial modeling. Use it as a directional tool alongside cohort analysis, payback period modeling, and professional financial guidance when planning growth and acquisition strategy.