Estimate how much profit an average customer brings over their lifetime. Add your acquisition cost to see the LTV to CAC ratio and payback time.
Results are estimates for planning. Check the figures before you make a financial or health decision.
How to calculate customer lifetime value
Multiply how much a customer spends each year by how long they stay, then apply your gross margin:
LTV = average order value × purchases per year × lifespan in years × gross margin
For example, a customer who spends 60 four times a year for three years brings 720 in revenue. At a 40 per cent margin, the lifetime gross profit is 288. Dividing LTV by the customer acquisition cost gives the LTV to CAC ratio.
Worked example
Using the default values in the calculator above:
| Input | Value |
|---|---|
| Average order value | 60 |
| Purchases per year | 4 |
| Customer lifespan (years) | 3 |
| Gross profit margin | 40 % |
| Customer acquisition cost, optional | 80 |
| Result | Value |
|---|---|
| Customer lifetime value (gross profit) | 288 |
| Lifetime revenue per customer | 720 |
| Gross profit per customer per year | 96 |
| LTV to CAC ratio | 3.6 : 1 |
| CAC payback | 10 months |
| Profit per customer after CAC | 208 |
What is a good LTV to CAC ratio?
A widely used target is at least 3 to 1, meaning each customer returns three times what it cost to win them. A ratio near 1 to 1 means you barely recover your acquisition cost, while a very high ratio can suggest you are under-investing in growth. Payback time matters too: shorter payback improves cash flow.
Tips and common mistakes
Use gross profit, not revenue, when comparing with CAC. Revenue overstates what a customer is worth.
Be careful with lifespan. Estimates for new businesses are guesses, so use churn data as soon as you have it. The churn rate calculator gives an average lifetime from your churn.
Averages hide differences. Some customer groups are worth much more than others, so work out LTV for each segment where you can.
Frequently asked questions
What is customer lifetime value?
The total profit you expect from an average customer over the whole time they buy from you.
How do I increase LTV?
Raise order value, encourage repeat purchases, improve retention and offer related products or subscriptions.
Should LTV use revenue or profit?
Profit is better, because it is what remains to pay for acquisition and overheads. Use revenue only if you do not know your margin.
What is CAC payback?
The time it takes for a customer's gross profit to cover the cost of acquiring them. Shorter is better.