What this calculator measures
Customer lifetime value estimates the economic value expected across a customer relationship. This calculator shows lifetime revenue and then applies gross margin to produce a simplified gross-profit value.
Average order value, purchase frequency, and lifespan should come from a consistent customer population. Combining high-value customers from one segment with lifespan from another can create a result that represents no real customer cohort.
Common use cases
Use this model when the inputs describe the same decision, period and customer or product scope.
- Estimate revenue or margin-aware value from order size, purchase frequency and customer lifespan.
- Compare customer cohorts, channels or segments using inputs drawn from the same population.
- Use the result to frame acquisition payback, while testing retention and margin assumptions separately.
Formula
A margin-aware LTV is usually more useful than lifetime revenue alone for acquisition decisions.
Formula breakdown
- Revenue, margin and lifetime assumptions should describe the same customer segment.
- A simplified LTV is a model, not a guarantee.
Worked example
An average order is $65, customers purchase six times per year, average lifespan is three years, and gross margin is 60%. Revenue LTV is $65 × 6 × 3 = $1,170. Gross-profit LTV is $702 after applying the margin.
Scenario comparison
$100 monthly revenue at 70% gross margin over 20 months gives about $1,400 gross-profit LTV.
If lifetime falls to 12 months, modeled LTV falls to about $840.
How to interpret the result
LTV is a model, not money already earned. Future purchases, retention, discounting, support costs, refunds, and changes in margin can make realized value different.
Use conservative inputs for acquisition decisions and compare cohorts over time. A simple historical average can overstate value for new channels that attract different customers.
What a good result looks like
Useful LTV should exceed acquisition and servicing costs with room for uncertainty.
Compare modeled value with realized cohort value as data matures.
Common mistakes
- Comparing revenue LTV directly with fully loaded CAC without margin adjustment.
- Inferring lifetime from a very short churn history without acknowledging uncertainty.
When this metric can mislead you
Small lifetime-assumption changes can create large LTV changes.
Expansion, contraction and discounts can make simple averages inaccurate.
How to use the result in a decision
Use LTV to set acquisition and retention investment limits.
Re-estimate by cohort and segment rather than relying on one permanent value.
Assumptions and limitations
- Order value, frequency, lifespan, and margin describe the same customer population.
- Purchase behavior and margin remain stable through the modeled lifespan.
- Gross margin captures the direct delivery cost relevant to the analysis.
- The model does not discount future cash flows or model retention curves.