Customer Lifetime Value Calculator
Calculate LTV, CAC, and your LTV:CAC ratio to understand customer profitability. The key metric for sustainable business growth.
Customer Lifetime Value
LTV Calculation
$200 per year × 3 years
Customer Acquisition Cost
CAC Calculation
Cost to acquire each new customer
The Verdict
Sustainable business model. Good balance of growth and profitability.
How to Calculate Customer Lifetime Value
Customer Lifetime Value (LTV or CLTV) measures the total revenue a business can expect from a single customer account throughout their relationship. It's a crucial metric for understanding customer profitability and making marketing investment decisions.
LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan
Example: A customer spends $50 per purchase, buys 4 times per year, and stays for 3 years. LTV = $50 × 4 × 3 = $600.
How to Calculate Customer Acquisition Cost
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, including marketing spend, sales team costs, and any other expenses directly related to customer acquisition. Understanding CAC helps you evaluate marketing efficiency and set sustainable growth budgets.
CAC = Total Marketing & Sales Spend ÷ Number of New Customers
Example: You spend $10,000 on marketing and acquire 50 customers. CAC = $10,000 ÷ 50 = $200 per customer.
What is a Good LTV:CAC Ratio?
The LTV:CAC ratio is the most important metric for evaluating business sustainability. It shows how much lifetime value you generate for every dollar spent on customer acquisition.
You're spending more to acquire customers than they're worth. Unsustainable without significant changes to pricing, retention, or acquisition costs.
Profitable but margins are thin. Focus on improving retention, increasing purchase frequency, or reducing acquisition costs.
The sweet spot for most businesses. Strong unit economics with room for profitable growth.
Excellent unit economics, but you may be leaving growth on the table. Consider investing more aggressively in customer acquisition.
Customer Lifetime Value Formula
There are several ways to calculate LTV depending on your business model and available data. Here are the most common approaches:
Simple LTV Formula
LTV = Average Purchase Value × Purchase Frequency × Customer Lifespan
Best for businesses with consistent purchase patterns.
Subscription LTV Formula
LTV = Average Monthly Revenue × Average Customer Lifespan (months)
Best for SaaS and subscription businesses.
Gross Margin LTV Formula
LTV = (Average Revenue × Gross Margin %) × Customer Lifespan
More accurate for businesses with variable costs.
Frequently Asked Questions
Why is LTV:CAC ratio important?
The LTV:CAC ratio tells you whether your business model is sustainable. If you spend more to acquire customers than they're worth, you'll eventually run out of money. Investors use this metric to evaluate startup viability and growth potential.
How can I improve my LTV?
Increase LTV by: raising prices, upselling premium features, cross-selling related products, improving customer retention, increasing purchase frequency through loyalty programs, and delivering exceptional customer experience to extend customer lifespan.
How can I reduce my CAC?
Reduce CAC by: optimizing ad targeting, improving conversion rates, leveraging organic channels (SEO, content marketing), building referral programs, partnering with complementary businesses, and focusing on high-intent keywords with lower competition.
What timeframe should I use for CAC?
Use the same timeframe for both marketing spend and customers acquired. Monthly or quarterly calculations work well for most businesses. Consider the full customer journey length — if your sales cycle is 3 months, include 3 months of marketing spend.
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