Free tool
Customer Lifetime Value Calculator
What a customer is worth over their whole lifetime, and therefore what you can pay to acquire one. The tool gives both: LTV, and the maximum acquisition cost it allows.
Customer lifetime value (LTV) is the revenue a customer generates over the whole length of their relationship with the business. You get it by multiplying average order value by purchase frequency and by customer lifespan. Applied to your margin, it gives the maximum amount it is profitable to pay to acquire a customer.
What a customer brings you, and what you can pay for them
How LTV is calculated
LTV = Average order value × Purchases per year × Lifespan With discounting: LTV = (Average order value × Purchases per year ÷ 12) × (1 + i) ÷ (i + 1 ÷ Lifespan in months), where i is the monthly rate Margin LTV = LTV × Gross margin Max CAC = Margin LTV ÷ Target ratio
An average order value of 80 €, 2.5 purchases a year and a 3-year lifespan give an LTV of 600 €. That is revenue, not profit: at 40 % gross margin, 240 € is left.
That second number is the one that drives acquisition. Targeting a 3-to-1 ratio between what a customer is worth and what they cost to acquire, you can pay up to 80 € to win one. That amount, not gross LTV, becomes your bidding ceiling.
The 3:1 ratio is a widely used planning convention, not a law: it leaves room for everything that is neither product nor advertising. A short sales cycle and comfortable cash let you go lower; a model that takes two years to pay back acquisition asks you to go higher.
Four traps in the calculation
- Lifespan is the number most often overestimated. Take it from real history, not from what you hope for.
- On subscriptions, lifespan comes from churn: a 4 % monthly churn rate gives an average lifespan of about 25 months (1 ÷ 0.04).
- An LTV computed across the whole base lies as soon as your customers differ from each other. Splitting by acquisition channel often changes the conclusion: the channel bringing the cheapest customers is not always the one bringing the best.
- LTV is not cash. It spreads over years while acquisition is paid this month. A model that is profitable over three years can run short of cash by month three.
Frequently asked questions
How do you calculate customer lifetime value?
Multiply average order value by yearly purchase frequency and by lifespan in years. Then multiply by gross margin to get the value actually available to you. The tool above does both and derives your maximum acquisition cost.
Should LTV be calculated on revenue or on margin?
On margin, as soon as an advertising budget depends on it. Revenue LTV is useful to compare segments against each other; margin LTV is the only one that says what you can really spend to win a customer.
What LTV:CAC ratio should you target?
3 to 1 is the most common benchmark. Below 1, every new customer costs more than they bring in. Well above 3, the signal runs the other way: acquisition is probably underfunded and the available growth is going to competitors.
Are LTV, CLV and CLTV the same thing?
Yes, three names for one metric. Watch out for the bare acronym LTV in English though: in lending it means loan-to-value, the ratio between a loan and the value of an asset, which has nothing to do with marketing.
Your LTV is calculated. Do your campaigns know it?
An accurate LTV only pays off once it flows back into bids, conversion values and audiences. That is the step from spreadsheet to account.
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