Estimate customer lifetime value (CLV): the gross profit an average customer brings over the whole relationship, and compare it with what you spend to acquire them.
What is customer lifetime value?
Customer lifetime value (CLV or LTV) estimates how much profit an average customer generates over their entire relationship with your business. It tells you how much you can afford to spend to win and keep customers.
CLV = average order value × purchases per year × years as a customer × gross margin
Worked example
Customers spend an average of $60 per order, buy 4 times a year and stay for 3 years. Lifetime revenue is $720. At a 70% gross margin, CLV is $504. If it costs $50 to acquire a customer, the CLV:CAC ratio is about 10:1, which is very healthy.
The CLV to CAC ratio
- Below 1:1: you lose money on every customer.
- Around 3:1: a common benchmark for a healthy business.
- Much higher than 3:1: profitable, but you may be underinvesting in growth.
Work out acquisition cost with the CAC calculator.
How to increase CLV
- Raise average order value with bundles and relevant add-ons.
- Encourage repeat purchases with email, subscriptions or loyalty programs.
- Reduce churn by improving onboarding and support. See the churn rate calculator.
Frequently asked questions
Should CLV use revenue or profit?
Profit gives a more useful number for decisions, which is why this calculator applies gross margin.
How do I estimate customer lifespan?
For subscriptions, a rough estimate is 1 ÷ yearly churn rate. A 25% yearly churn suggests an average lifespan of 4 years.
Related tools
Results are estimates for planning and education. They are not accounting, tax or legal advice. Check important figures with a qualified accountant.