How to use the customer lifetime value calculator
- 1Choose "Repeat purchases" if customers buy from you now and then, or "Subscription" if they pay you every month.
- 2For repeat purchases, enter the average order value, how many orders a customer places per year and how many years they keep buying. For a subscription, enter the monthly price and your monthly churn rate.
- 3Enter your gross margin: the share of each sale left after the direct cost of the product or service.
- 4Optionally enter your customer acquisition cost, the average you spend on marketing and sales to win one new customer.
- 5Read the lifetime value, the CLV:CAC ratio and the months it takes to recover acquisition cost. Change any number to test a price rise or a churn cut.
What customer lifetime value means
Customer lifetime value (CLV, often called LTV) is the profit you can expect from one customer over the whole time they buy from you. It tells you how much you can afford to spend to win a customer and still come out ahead.
This calculator uses gross profit, not revenue. A customer who spends $720 with you is not worth $720 if half of that goes on the goods you sell. Revenue-based CLV looks bigger but leads to overspending on ads, so the revenue figure is shown separately for reference only.
Annual revenue = Average order value × Purchases per year CLV = Annual revenue × Gross margin % × Lifespan in years
Subscriptions: lifespan from churn
If customers pay monthly, you rarely know how long they will stay, but you do know your churn: the share of customers who cancel each month. On average, a customer stays for one divided by the churn rate. A 4% monthly churn means an average lifespan of 25 months.
This is a simple average that assumes churn stays steady. In practice churn is often higher in the first few months and lower for long-standing customers, so treat the answer as a planning figure.
Average lifespan (months) = 1 ÷ Monthly churn rate CLV = Monthly price × Gross margin % × Lifespan in months
CLV:CAC ratio and the 3:1 rule of thumb
Customer acquisition cost (CAC) is what you spend on marketing and sales divided by the number of new customers it brings in. Comparing it with CLV shows whether growth pays for itself.
A ratio of about 3:1 is a common guideline, especially among subscription businesses: each customer returns roughly three times what it cost to win them. It is a rule of thumb, not a law. A business with cheap capital, high repeat rates or a short payback period can run below it, and a ratio far above 5:1 can mean you are underspending on growth. Below 1:1, you lose money on every customer you add.
CLV:CAC ratio = CLV ÷ CAC
How long it takes to recover acquisition cost
The payback period is the number of months of gross profit needed to cover what you spent winning the customer. It matters for cash: until a customer pays back their CAC, you have spent money you have not yet earned back.
If the payback period is longer than the customer lifespan, the customer leaves before they have paid for themselves.
Months to recover CAC = CAC ÷ (Annual gross profit per customer ÷ 12)
Worked example
An online coffee shop sells bags of beans. A typical customer spends $60 per order, orders 4 times a year and keeps buying for 3 years. The gross margin is 55%, and the shop spends $90 on ads to win each new customer.
| Revenue per year | $240.00 |
| Gross profit per year | $132.00 |
| Revenue over 3 years | $720.00 |
| Customer lifetime value (gross profit) | $396.00 |
| CLV:CAC ratio | 4.4 : 1 |
| Months to recover CAC | 8.2 months |
Each customer brings in $396 of gross profit and pays back the $90 acquisition cost in about 8 months. At 4.4:1 the shop could spend more on ads and still stay above the common 3:1 guideline.