CLV Calculator: Customer Lifetime Value (LTV)
Enter what a customer pays each month, your gross margin and monthly churn to estimate customer lifetime value (also called CLV or LTV) and compare it with the cost of winning that customer. For the cost side on its own, see the CAC calculator.
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Formula
- Simple:
CLV = ARPU x gross margin / monthly churn - Discounted:
CLV = ARPU x gross margin / (monthly churn + monthly discount rate), wheremonthly discount rate = (1 + annual rate)^(1/12) - 1 - Expected lifetime:
1 / monthly churnmonths - LTV:CAC ratio:
CLV / customer acquisition cost
Assumptions: churn is constant, revenue per customer stays flat, and each month's profit arrives at the end of the month. The discounted form is the sum of a geometric series, so with a discount rate of 0 it equals the simple form.
Worked example
50 a month, 70% margin, 5% monthly churn, CAC 200.
- Simple: 50 x 0.70 / 0.05 = 700, lifetime 1 / 0.05 = 20 months, LTV:CAC = 700 / 200 = 3.5.
- Discounted at 10% a year: monthly rate = 1.10^(1/12) - 1 = 0.79741%, so CLV = 35 / (0.05 + 0.0079741) = 603.72 and the ratio is 3.02.
Another example
30 a month, 80% margin, 4% monthly churn, CAC 200: CLV = 30 x 0.80 / 0.04 = 600, lifetime = 1 / 0.04 = 25 months and LTV:CAC = 600 / 200 = 3.0.
Rules of thumb
An LTV:CAC ratio of 3 or more is a widely quoted guide, and a ratio near 1 means you lose money on each customer after costs. Treat it as a rule of thumb: ratios depend on payback speed and cash available.
Common mistakes
- Using revenue instead of gross profit.
- Taking churn from a few good months, or from the blended base when new customers churn faster.
- Using a tiny churn rate, which gives enormous lifetime values.
- Applying the subscription formula to a business with one-off purchases.
How it differs
CLV is profit over the whole relationship, a forward-looking estimate. Customer acquisition cost is what it took to start the relationship, and churn rate is the single input that most changes CLV. Average order value is per order only.
Frequently asked questions
How is customer lifetime value calculated?
The simple formula is CLV = average revenue per customer x gross margin / churn rate. With 50 a month, a 70% margin and 5% monthly churn, that is 50 x 0.70 / 0.05 = 700.
What is a good LTV:CAC ratio?
A common rule of thumb is 3 or higher, meaning each customer returns at least three times what it cost to acquire them. It is a guide, not a law: with a CLV of 700 and a CAC of 200 the ratio is 3.5.
What does the discounted method change?
It values later months at less than today's money. A 10% annual rate is about 0.80% a month, so the 700 above becomes 50 x 0.70 / (0.05 + 0.0080) = about 603.72.
How do I find my monthly churn rate?
Divide the customers you lost in a month by the customers you had at its start. Losing 25 of 500 customers is 5%, which implies an average lifetime of 1 / 0.05 = 20 months. If you use this to make spending or investment decisions, treat the result as an estimate from the numbers you entered and check it with a qualified adviser.
Is CLV the same as LTV?
In practice yes: CLV (customer lifetime value) and LTV (lifetime value) describe the same idea, the total profit expected from a customer. Some teams use LTV for subscription products and CLV for retail, and some use one for revenue and the other for profit, so check the definition before comparing figures.
How do I calculate customer lifetime value for ecommerce?
Multiply average order value by orders per year, by years as a customer and by gross margin. A 60 AOV, 3 orders a year for 4 years at a 40% margin is 60 × 3 × 4 × 0.40 = 288. This calculator uses the subscription form with churn instead.
CLV vs CAC: which matters more?
Neither alone. CAC tells you what you pay and CLV tells you what you get back, so the ratio and the payback time matter. A business with a CLV of 600 and a CAC of 200 has a ratio of 3.0, but if it takes 20 months to earn back the CAC, cash may still run short.