Customer Lifetime Value (LTV) Calculator

The LTV Calculator estimates customer lifetime value - the total gross profit one customer is expected to generate over their whole relationship with your business. It works in two modes: an ecommerce mode built on order value, purchase frequency, and customer lifespan, and a subscription mode built on monthly revenue per user, churn, and acquisition cost, which also reports the LTV to CAC ratio and payback period.

How It Works

1. Pick the mode that matches your business. If you enter monthly ARPU and a churn rate, the tool runs the subscription model. Otherwise it runs the ecommerce model using average order value, purchase frequency per year, and customer lifespan in years.
2. Convert activity into total revenue per customer. Ecommerce mode multiplies order value by frequency by lifespan. Subscription mode first converts churn into an expected lifespan in months, then multiplies monthly revenue per user by that lifespan.
3. Apply gross margin to get lifetime value. Revenue is multiplied by your gross margin percentage, because a customer is only worth what remains after the cost of serving them. The default margin is 100 percent, which reports revenue-based LTV.
4. Compare against acquisition cost in subscription mode. If you enter CAC, the tool divides LTV by CAC for the ratio and divides CAC by monthly gross profit per customer for the payback period in months.

Formula

Ecommerce mode:

$\text{Total revenue}=\text{Average order value}\times\text{Purchases per year}\times\text{Lifespan in years}$

$\text{LTV}=\text{Total revenue}\times\text{Gross margin \%}$

Subscription mode:

$\text{Expected lifespan in months}=\frac{1}{\text{Monthly churn rate}}$

$\text{LTV}=\text{ARPU}\times\text{Gross margin \%}\times\text{Expected lifespan}$

$\text{LTV to CAC ratio}=\frac{\text{LTV}}{\text{CAC}}$

Input Parameters

| Parameter | Unit | Typical range | What it means | | --- | --- | --- | --- | | Average order value (ecommerce) | Currency per order | Above 0 | Mean revenue from one order | | Purchase frequency (ecommerce) | Orders per year | Above 0, often 1 to 12 | How often one customer buys in a year | | Customer lifespan (ecommerce) | Years | Above 0, often 1 to 10 | How long a customer keeps buying | | ARPU (subscription) | Currency per month | Above 0 | Average monthly revenue per user | | Churn rate (subscription) | Percent per month | Above 0 and at most 100 | Share of customers cancelling each month | | CAC (subscription, optional) | Currency per customer | 0 and up | Fully loaded cost of acquiring one customer | | Gross margin (either mode) | Percent | Above 0 and at most 100 | Revenue left after direct cost of goods or service |

Enter figures from the same customer segment. Mixing enterprise ARPU with self-serve churn, or a blended margin with a single product's order value, produces an LTV that describes no real customer.

Worked Example

A subscription app charges an average of USD 100 per user per month, loses 5 percent of customers each month, runs at an 80 percent gross margin, and spends USD 400 to acquire each customer.

1. Expected lifespan: 1 divided by 0.05 = 20 months.
2. Monthly gross profit per customer: USD 100 x 80 percent = USD 80.
3. Lifetime value: USD 80 x 20 months = USD 1,600.
4. Total revenue per customer: USD 100 x 20 months = USD 2,000.
5. LTV to CAC ratio: USD 1,600 divided by USD 400 = 4.0, written as 4 to 1.
6. CAC payback: USD 400 divided by USD 80 = 5 months.

The same engine in ecommerce mode: an average order of USD 100, 4 orders a year, a 3-year lifespan, and a 25 percent margin gives total revenue of USD 1,200 and an LTV of USD 300.

Interpreting the Results

The LTV to CAC ratio is the headline health check for a subscription business. The tool treats a ratio of 3 to 1 or better as fundable unit economics, between 1.5 and 3 as workable but fragile, and below 1.5 as a warning that customers barely repay their acquisition cost. Payback matters as much as the ratio: a 4 to 1 ratio that takes 24 months to recover CAC can still strain cash, while a 5-month payback funds its own growth.

Churn dominates the subscription maths. Halving monthly churn from 5 percent to 2.5 percent doubles expected lifespan from 20 to 40 months and doubles LTV with no change in price. Gross margin is the second lever most teams forget: an LTV quoted on revenue at 100 percent margin can be two or three times the gross-profit figure, so always state which basis you used when comparing numbers.

Choosing the Right Tool

• Use the ARR Calculator when you need annual recurring revenue and related subscription metrics for the whole business rather than value per customer.
• Use the Contribution Margin Calculator when you need the margin per product or per order after variable costs, which is an input to - not a replacement for - the gross margin used here.
• Use the Break-Even Calculator when the question is how many units or customers you must sell to cover fixed costs, rather than what each customer is worth.
• Use the ROI Calculator to judge a single campaign or project outlay instead of an ongoing customer relationship.

Limitations

Both modes assume steady behaviour: constant order values, a constant churn rate, and a margin that does not change as customers age. Real cohorts usually churn faster in early months and slow later, so a single average churn rate can overstate lifespan. The subscription model treats lifespan as the reciprocal of churn, a standard simplification that works best for mature products with stable retention. The tool does not discount future cash flows, so a dollar expected in year five is counted the same as a dollar this year, and it ignores expansion revenue, refunds, and win-backs. Use trailing twelve-month actuals from your billing and analytics systems rather than launch-period figures.

Questions

What is a good LTV to CAC ratio?

A ratio of 3 to 1 is the common benchmark: each customer returns three times their acquisition cost in gross profit. Much higher can signal under-investment in growth; below 1.5 to 1 usually means acquisition spending destroys value unless retention improves.

Should LTV be calculated on revenue or gross profit?

Gross profit is the safer basis for decisions, because revenue ignores the cost of serving the customer. This tool defaults to 100 percent margin, which gives the revenue figure, so enter your real gross margin for a decision-grade result.

Why does churn have such a large effect?

Because lifespan is the reciprocal of churn. At 10 percent monthly churn a customer lasts 10 months on average; at 2 percent they last 50 months. Small absolute changes in churn therefore multiply or divide LTV.

Sources and Methodology

The formulas follow the standard customer lifetime value models taught in marketing analytics and used in subscription reporting: revenue times frequency times lifespan for transactional businesses, and ARPU times gross margin divided by churn for subscription businesses, as described in standard references such as Farris and co-authors, Marketing Metrics, and in cohort analysis guidance published by major billing platforms. Benchmarks quoted for the LTV to CAC ratio reflect the widely used 3 to 1 rule of thumb in venture and SaaS practice, not a guarantee of performance.