How to use this calculator
- Enter what a typical customer spends per order and how many orders they place in a year. Your sales records will show both.
- Enter your gross margin: the percentage of each sale left after paying for the product or service itself.
- Enter how long customers usually stay, and what you spend on marketing and sales to win each new one.
- Compare the lifetime value with the cost to see whether winning customers pays off, and how fast.
How it's calculated
This uses gross profit, not total sales, because the cost of the product has to be paid before any money is left to cover marketing.
Worked example
A small online tea shop sells $50 orders. A typical customer orders 4 times a year and stays for 3 years. The shop keeps 60% of each sale after the cost of the tea, and spends about $120 on ads to win each new customer.
Each customer brings in $360 of gross profit over their lifetime, three times what it costs to win them. It takes a year of orders to earn back the $120, leaving $240 after that.
Ways to raise lifetime value
- Keep customers longer: good service, reminders and subscriptions all add years.
- Raise order value: bundles, add-ons or free delivery above a minimum spend.
- Improve margin: better supplier prices or a small price rise.
- Win customers more cheaply: referrals and search traffic often cost less than ads.
Frequently asked questions
What does an LTV:CAC ratio below 1 mean?
Each customer costs more to win than they bring in as gross profit, so every new customer loses money. A ratio of exactly 1 means you only break even, before paying any other business costs such as rent or wages.
How do I work out how long customers stay?
Look at past customers: how long between their first and last order? If you know the share of customers you lose each year (your churn rate), an estimate is 1 ÷ churn rate. For example, losing 25% a year suggests customers stay about 4 years.
Should I use revenue or profit?
Profit gives a more honest answer, which is why this calculator uses gross margin. Some people quote lifetime value as revenue, so check which one is meant when you compare figures.