Revenue ÷ orders. For a subscription, the monthly price.
Orders per customer in a year. For a monthly subscription, 12.
How long a customer keeps buying. 1 ÷ yearly churn rate is a good estimate.
Revenue minus the cost of the goods or service, as a share of revenue.
Customer lifetime value
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Enter average order value, purchases per year, years as a customer and gross margin.
- Lifetime gross profit
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- Revenue per customer per year
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The LTV formula
LTV = average order value × purchases per year × years as a customer
Example: Customers spend $60 an order, buy 3 times a year and stay for 2 years: $60 × 3 × 2 = $360 lifetime value. At a 40% gross margin, that is $144 of gross profit per customer, so winning a customer for more than $144 loses money.
What is LTV?
Customer lifetime value, also called LTV, CLV or CLTV, estimates the revenue one customer brings over their whole relationship with you. It turns a single sale into the value of a customer, which is what tells you how much you can spend to win one.
Revenue LTV is the headline number, but gross profit LTV is the one to compare with acquisition cost, because it is what is left to pay for marketing after the goods or service are paid for.
For a subscription business, the usual version is monthly revenue per customer × gross margin ÷ monthly churn rate. With $100 a month, an 80% gross margin and 4% of customers leaving each month, LTV is $100 × 0.8 ÷ 0.04 = $2,000 of gross profit.
How to increase customer lifetime value
- Raise the average order value with bundles, free-shipping thresholds or a better plan for heavy users.
- Bring customers back sooner: reminders, replenishment emails and offers timed to when they usually run out.
- Keep them longer. Fix the reasons people leave, from late deliveries to a confusing first week in the product.
- Win better customers. Channels differ: compare the LTV of customers from each one, not only their acquisition cost.
What LTV doesn't tell you
- LTV is a forecast. Years as a customer and purchases per year come from past behavior, which changes with the product, prices and the market.
- An average hides spread. A few loyal customers can lift the average far above what most customers are worth.
- Young businesses have little history, so treat early LTV as a range and check it every few months.
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Frequently asked questions
How do you calculate customer lifetime value?
Multiply average order value by purchases per year and by the years a customer stays. $60 × 3 orders a year × 2 years = $360. Multiply by your gross margin for lifetime gross profit: at 40%, $144.
Are LTV and CLV the same?
Yes. LTV, CLV and CLTV all mean customer lifetime value. Some teams use LTV for revenue and CLV for profit, so check which one a report means.
How do you calculate LTV for SaaS?
Divide monthly revenue per customer × gross margin by monthly churn. $100 a month at an 80% margin with 4% monthly churn gives $100 × 0.8 ÷ 0.04 = $2,000.
How do I estimate years as a customer?
Use 1 ÷ churn rate. If 25% of customers stop buying each year, the average customer stays about 1 ÷ 0.25 = 4 years. With monthly churn, the result is in months.
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