Calculate customer lifetime value
💡 Why This Matters Customer Lifetime Value (LTV) tells you how much each customer is worth over their entire relationship with your business. Knowing LTV helps you decide how much to spend on acquisition and retention.
Acquiring a new customer typically costs 5 to 7 times more than retaining an existing one, which is exactly why LTV — not just conversion rate — is the number most seasoned marketers watch closest.
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How It's Calculated: LTV = Average Order Value × Purchase Frequency × Customer Lifespan × Profit Margin. This gives you the total profit a single customer generates over their entire relationship with your business.
Why LTV Matters: If LTV is $1,000 and customer acquisition costs $500, you have a 2:1 ROI. Knowing LTV helps you decide how much to spend on marketing, customer service, and retention programs profitably.
LTV by Business Model: SaaS companies often have high LTV with monthly subscriptions. E-commerce typically lower per-order but can grow with repeat purchases. B2B often has highest LTV but longer sales cycles.
Increasing LTV: Focus on increasing purchase frequency through loyalty programs, raising average order value with bundles, extending customer lifespan with exceptional service, and improving margin where possible.
Using Your Results: Compare LTV to customer acquisition cost (CAC). Healthy businesses have LTV at least 3x CAC. If LTV is lower than acquisition cost, you're losing money on every new customer.
Example: Say your average order is $50, customers buy 4 times a year, stay for 5 years, and your profit margin is 30%. Multiply it out: $50 × 4 × 5 = $1,000 revenue per customer, then × 0.30 margin = $300 LTV. That means you can profitably spend up to $150 (50% of LTV) to acquire each customer.
LTV = Average Order Value × Purchase Frequency × Customer Lifespan × Profit Margin. This gives you the total profit a single customer generates over their entire relationship with your business.
Healthy businesses generally have LTV at least 3x their customer acquisition cost (CAC). If LTV is lower than acquisition cost, you're losing money on every new customer.
Focus on increasing purchase frequency through loyalty programs, raising average order value with bundles, extending customer lifespan with exceptional service, and improving margin where possible.