Calculate lifetime value of customers.
Choose the calculation method that fits your business model
Average amount spent per transaction
How often customers make purchases per year
Average time customers remain active
Average monthly revenue per customer
Profit margin on sales
Percentage of customers lost each month
Number of customers in the cohort
Monthly decrease in revenue per customer
Monthly decrease in retention rate
Cost to acquire each customer (optional)
Customer Lifetime Value predicts total revenue from a customer relationship.
Higher LTV indicates more valuable customers and sustainable business models.
LTV should be at least 3x higher than CAC for healthy unit economics.
Customer Lifetime Value
model
✅ Excellent unit economics - sustainable growth model
⚠️ Acceptable but monitor closely
❌ Poor unit economics - need to improve LTV or reduce CAC
| Month | Customers | Retention % | Revenue/Customer | Total Revenue | Cumulative LTV |
|---|---|---|---|---|---|
Customer Lifetime Value (LTV or CLV) is the total revenue a business can expect from a single customer account.
It helps businesses understand how much they can spend to acquire customers while remaining profitable.
LTV is crucial for making informed decisions about marketing spend, customer service, and product development.
Simple: AOV × Purchase Frequency × Customer Lifespan
Traditional: (Monthly Revenue × Gross Margin) ÷ Monthly Churn Rate
Cohort-based: Tracks actual customer behavior over time
• Improve customer retention
• Increase purchase frequency
• Raise average order value
• Develop loyalty programs
• Enhance customer experience
• 3:1 or higher = Excellent
• 2:1 to 3:1 = Acceptable
• Below 2:1 = Problematic
• 1:1 = Unsustainable
• Monitor payback period
• Segment customers by value
• Account for churn rates
• Consider discount rates
• Update calculations regularly
• Use cohort analysis for accuracy
| Model | Best For | Pros | Cons |
|---|---|---|---|
| Simple | E-commerce, retail | Easy to calculate | Less accurate |
| Traditional | SaaS, subscriptions | Accounts for churn | Assumes constant behavior |
| Cohort-based | All business types | Most accurate | Requires more data |
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