Use this customer lifetime value calculator to estimate revenue and gross profit from an average customer relationship. Enter order value, purchases per year, expected years, gross margin, annual service cost, and acquisition cost. Compare the resulting contribution with CAC using consistent assumptions.
Customer lifetime value results
The model spreads orders and costs evenly over the entered lifespan for payback. Actual purchases, cash flows and retention can vary.
Customer lifetime value formula
The customer lifetime value calculator uses a simple average-customer model. Revenue-based CLV multiplies average order value by purchases per year and expected customer lifespan. A margin-adjusted view applies gross margin to that revenue. An optional annual service or retention cost reduces the contribution before acquisition cost, and CAC is then subtracted once. Shopify’s CLV guide explains the order-value, purchase-frequency, lifespan and margin-adjusted approaches. HubSpot’s CLV guide also discusses customer value and lifespan.
Revenue CLV = average order value × expected lifetime orders.
Gross-profit CLV = revenue CLV × gross margin ÷ 100.
Lifetime service cost = annual service cost × customer lifespan.
Contribution before CAC = gross-profit CLV − lifetime service cost.
Contribution after CAC = contribution before CAC − CAC.
Contribution / CAC = contribution before CAC ÷ CAC, when CAC is positive.
Simple payback months = CAC ÷ (annual gross profit − annual service cost) × 12, when annual contribution is positive.
The customer lifetime value calculator calls the margin-adjusted result “contribution” because it does not include every possible cost. Annual service cost should include only costs that are outside the gross margin input. For example, do not subtract the same fulfillment cost from gross margin and again as annual service. The displayed payback assumes a steady annual contribution and does not model the timing of the first order, seasonal demand, discounts, refunds, or the time value of money.
Worked example: $100 order value
Suppose the average customer spends $100 per order, buys four times each year and remains active for three years. Expected lifetime orders are 4 × 3 = 12, and revenue-based lifetime value is $100 × 12 = $1,200. At a 50% gross margin, projected lifetime gross profit is $600.
Service and retention cost of $30 a year adds up to $90 across three years. The customer lifetime value calculator therefore shows $510 contribution before CAC. With $100 CAC, contribution after acquisition is $410, and contribution divided by CAC is 5.10×. Annual gross profit is $100 × 4 × 50% = $200. After $30 annual service cost, annual contribution is $170; simple payback is $100 ÷ $170 × 12, or about 7.06 months.
These outputs are projections based on averages, not a promise about any individual customer. If the customer buys fewer times, leaves earlier, or requires more support than expected, realized contribution will be lower. Use observed cohort behavior and update the customer lifetime value calculator when the data changes.
Revenue CLV versus margin-adjusted CLV
Revenue-based CLV measures projected sales, which can help plan demand and segment customer groups. It should not be compared directly with a profit-based acquisition cost as if all revenue were available to repay marketing spend. Gross profit subtracts direct product or service costs. The customer lifetime value calculator then subtracts additional per-customer support and retention spending, if entered, to give a narrower contribution figure.
Terminology varies across companies. Some teams call revenue the “lifetime value,” others call gross profit “LTV,” and others use a contribution after several customer-specific costs. Record which definition you use whenever you present a ratio. The customer lifetime value calculator labels each result explicitly so the numerator and denominator are visible. Its “contribution / CAC” is based on the pre-CAC contribution divided by CAC; the “after CAC” card subtracts acquisition spend once.
In the customer lifetime value calculator, a ratio above one means modeled contribution exceeds CAC under the inputs, but it does not establish business profitability. Fixed overhead, taxes, financing, discounts, returns, bad debts and capital needs may remain. There is no universal target ratio. A very long payback can strain cash flow even if projected lifetime contribution looks attractive.
Estimating frequency and lifespan
Annual purchase frequency should represent orders per active customer across a suitable cohort, rather than the number of orders placed by all customers combined. Use a comparable period and avoid mixing customers who joined recently with long-standing customers without checking the effect. The customer lifetime value calculator accepts fractional frequency: 2.5 orders per year is a valid average, even though an individual order count is whole.
Expected lifespan is often the most uncertain input. Estimate it from historical retention or survival by cohort when possible. A recent business may have too little history to know whether a customer lasts one year or several. Run conservative and optimistic cases, then compare how much the output changes. For subscription businesses, purchase frequency may be 12 monthly charges per year, but changing plans, churn and expansion revenue can make a single fixed order value misleading.
For the customer lifetime value calculator, compare costs like with like. A customer segment that buys high-margin products may also require more service. If you enter one gross margin for all orders, the customer lifetime value calculator assumes that margin is stable across the relationship. A mix shift, repeat-order discount, or annual price change requires a more detailed cohort model. This calculator is intended for quick, transparent planning.
Connecting lifetime value with CAC
Get a blended acquisition figure from the Customer Acquisition Cost Calculator using sales and marketing costs and distinct new customers from the same cohort or reporting approach. Enter that CAC here once. The customer lifetime value calculator then shows both the contribution-to-CAC ratio and the amount remaining after CAC. Be careful not to include acquisition expense again in annual service cost.
Validate average order value with the Revenue Calculator and direct costs with the Gross Profit Calculator. The Contribution Margin Calculator can help identify variable costs that gross margin alone misses. Use the Cash Flow Calculator to see when acquisition is paid and when repeat purchases might bring cash back. Long-term value and near-term liquidity are different questions.
Compare channels or segments by rerunning the customer lifetime value calculator with consistent margin and service definitions. A low-cost channel may attract customers who buy once, while a more expensive channel may bring customers who return. Attribution, lag and selection bias can distort comparisons. Use the model to frame an experiment, then verify performance with observed retention and contribution.
Assumptions and limitations
- The customer lifetime value calculator assumes a constant average order value, purchase frequency, gross margin and annual service cost throughout the entered lifespan.
- Lifespan must be positive. Other amount and frequency inputs may be zero; gross margin must be between 0% and 100%.
- Negative contribution is possible if service costs exceed modeled gross profit. A nonpositive annual contribution makes simple CAC payback unavailable for positive CAC.
- When CAC is zero, contribution / CAC is undefined. With zero CAC, simple payback is shown as zero only when annual contribution is positive.
- The model excludes discounting, cohort survival curves, churn timing, refunds, taxes, overhead, capital costs and future acquisition spending.
- Currency selection formats values but never converts them. Enter all amounts in one currency. Display rounding does not change intermediate calculations.
Use the customer lifetime value calculator CSV to preserve assumptions for spreadsheet review. The print button opens your browser’s PDF option. For major decisions, reconcile the inputs with accounting records and review a cohort model rather than treating an average as a precise forecast.
Customer lifetime value calculator FAQs
Is customer lifetime value revenue or profit?
Both conventions exist. This calculator labels revenue CLV, gross profit, and contribution after service costs separately.
How do I estimate customer lifespan?
Use historical retention by cohort where available; otherwise test a range and update it as actual customer behavior becomes clearer.
Should I subtract CAC from CLV?
Use a consistent pre-CAC contribution for the ratio, and subtract CAC once for the after-acquisition amount.
Does the ratio prove profitability?
No. It excludes many business costs and depends on assumptions about future purchases and retention.
Why is payback unavailable?
With positive CAC, zero or negative annual contribution cannot repay acquisition spend in this simple steady-rate model.
Can I use a subscription business?
Yes for a simple recurring-charge approximation. Enter the average annual purchase frequency and check whether churn, upgrades and discounts require a more detailed model.