Customer lifetime value calculator

Customer lifetime value formula

Customer lifetime value = average order value × purchases per year × customer lifespan in years

Gross profit lifetime value = customer lifetime value × gross margin

Customer lifetime value (CLV, often written LTV) is what one customer brings in over the whole time they buy from you. It matters most for a business with repeat purchases: a coffee subscription, a salon, a skincare brand. For those, the first order is only part of what a new customer is worth.

The calculator follows one rule. When you enter a gross margin, the headline is lifetime value as gross profit, because profit is what pays for marketing, and the LTV:CAC ratio and the payback use the same figure. Without a margin, all three use revenue and say so. Revenue makes every ratio look better than it is, so add the margin when you know it.

LTV:CAC ratio and CAC payback

Add your customer acquisition cost (CAC) and the calculator adds two answers:

• LTV:CAC ratio = lifetime value ÷ CAC. How many dollars a customer brings back for each dollar spent to win them.
• CAC payback (months) = CAC ÷ (average order value × purchases per year ÷ 12 × gross margin). How long a customer has to stay before they have paid back their acquisition cost.

The usual rule of thumb is a ratio of 3:1 or better and a payback inside 12 months. It comes from David Skok's SaaS Metrics 2.0 guide (see Sources), which says the best SaaS businesses have an LTV to CAC ratio above 3 and that profitability gets weak when recovering CAC takes longer than 12 months. He presents both as guidelines with exceptions, and he wrote them for subscription software. For a shop or a service business they are a reasonable starting point, not a law.

How to calculate customer acquisition cost

CAC = acquisition spend in a period ÷ new customers won in that period

Count everything you spent to win customers: ads, promotions, and any sales or agency costs tied to new business. Count only first-time buyers. If ads are your only channel, CAC is the same as cost per acquisition with a first purchase as the conversion, and the CPA calculator works it out from spend and conversions.

A worked example

These numbers are made up to show the math. A skincare shop has an average order of $60. A typical customer orders 4 times a year and keeps buying for 2 years. Gross margin is 50%, and winning a new customer costs $80.

The shop sits right on the 3:1 line and earns back each customer's cost in 8 of the 24 months they stay. Left at revenue, the same numbers would show a 6.00x ratio: twice as good on paper, with nothing changed.

How ad spend ties in

The first order rarely pays for the ad that brought it. In the example, the first order earns $30 in gross profit against an $80 acquisition cost, a loss of $50 that the next orders make up. If the $80 is all Meta or Google ad spend, the first order returns 0.75x on that spend, while the break-even ROAS calculator puts break-even at 2.00x for a 50% margin.

That is the choice lifetime value lets you make on purpose: accept a first-order ROAS below break-even because repeat orders pay it back. Make it only when you know customers come back, and watch the cash, because the spend leaves today and the profit arrives over months. Check what each campaign returns with the ROAS calculator, and turn a monthly goal of new customers into a daily budget with the Facebook ads budget calculator.

How to read your result

• Below 1:1: each customer costs more to win than they bring in. Fix the offer, the price or the acquisition cost before spending more.
• Between 1:1 and 3:1: profitable on paper, but thin. CAC leaves out rent, wages and software, which the gross profit still has to cover.
• 3:1 or above: room to spend more to grow, as long as more spend keeps bringing customers at a similar cost. CAC usually rises as you reach colder audiences.
• Payback longer than the lifespan: the customer leaves before paying back their cost, whatever the ratio says.

Where the inputs come from

• Average order value: revenue ÷ number of orders, over the last 12 months.
• Purchases per year: orders ÷ unique customers over the same 12 months.
• Customer lifespan: how long customers keep buying. If you know the share of customers who stop each year, 1 ÷ that share is a rough estimate: if 40% stop each year, lifespan is about 2.5 years.
• Customer acquisition cost: acquisition spend ÷ new customers, from the formula above.

Limits

• Averages hide groups. Customers from one channel may buy twice as often as those from another. Work out lifetime value for each channel when the numbers allow.
• Lifespan is a guess for a young business. Without two or three years of history, look at how many first-time buyers from each month come back, and update the estimate as data comes in.
• No discounting. Money in two years is worth less than money today, and refunds and returns are not counted here.
• Gross margin is not net profit. Lifetime value as gross profit is the ceiling for acquisition cost, not a profit figure.

Sources

• David Skok, SaaS Metrics 2.0: A Guide to Measuring and Improving What Matters, For Entrepreneurs, checked November 9, 2026. LTV to CAC above 3 and CAC recovered within 12 months, presented as guidelines.