Customer lifetime value (LTV) calculator

Estimate how much gross profit an average customer brings over their relationship with you, and compare it with what they cost to win.

What you enter

• Average order value (ex GST) – Total revenue ÷ number of orders.
• Purchases per customer per year – For a monthly subscription, use 12.
• Gross margin – Gross profit ÷ revenue. Use the profit margin calculator if you are not sure.
• Average customer lifespan – How long a typical customer keeps buying. Roughly 1 ÷ monthly churn rate for subscriptions.
• Customer acquisition cost (optional) – From the CAC calculator. Used for the LTV : CAC ratio.

How it is calculated

Annual revenue per customer = Average order value × Purchases per year. Lifetime revenue = Annual revenue × (Lifespan in months ÷ 12). Lifetime value = Lifetime revenue × Gross margin. LTV : CAC = Lifetime value ÷ Customer acquisition cost.

Assumptions

• Order value, purchase frequency and margin stay steady over the customer’s lifetime.
• Future profit is not discounted to today’s dollars.
• Amounts exclude GST.

Limitations

• Averages hide your best and worst customers; segment them if you can.
• New businesses have little history, so lifespan is a guess. Revisit it as real data builds up.

Related articles

• Customer lifetime value – Customer lifetime value tells you what a customer is really worth over the whole relationship. Learn to calculate it simply, compare it with acquisition cost and use it to decide where to spend.
• Customer retention – Keeping the customers you already have is the cheapest growth available. Learn to measure churn, spot the customers about to leave and build the habits that keep them coming back.
• Sales performance metrics – The handful of numbers that tell you whether your sales engine is working: activity, conversion, velocity and value, how to calculate them from your CRM, and how to use them to coach rather than just to judge.