LTV Calculator

What Is Customer Lifetime Value and Why Does It Matter

Customer lifetime value (LTV) is a practical way to answer one of the most important growth questions: how much can you afford to pay to acquire a customer and still build a healthy business? Instead of making decisions based on a single order or a single month, LTV connects marketing, product, and finance by estimating the total value a customer produces over time. When LTV is understood and measured consistently, it becomes a clear guardrail for budget setting, channel scaling, and pricing strategy.

LTV is often talked about as “revenue per customer,” but revenue alone does not pay bills. The number that most teams actually need is profit LTV (also called contribution LTV): revenue over the customer’s lifetime multiplied by gross margin and adjusted for variable fees or per-order costs. Profit LTV is what funds advertising, salaries, inventory, and future growth. If your LTV number is not connected to profit, it can encourage decisions that grow sales but shrink cash.

Revenue LTV vs Profit LTV

A common confusion is whether LTV should represent revenue or profit. Both can be valid, but they answer different questions. Revenue LTV is useful for understanding customer demand and forecasting top-line sales. Profit LTV is useful for deciding how aggressive you can be with customer acquisition cost (CAC). If your gross margin is 40%, a revenue-based LTV can overstate affordability by a lot.

How to think about it

• Use revenue LTV when you are modeling revenue, retention curves, or customer revenue cohorts.
• Use profit LTV when you are setting CAC targets, evaluating channel economics, or deciding how much to scale.

This calculator gives you both, but it highlights profit LTV because it is the safer and more decision-ready number.

Subscription LTV: The ARPU and Churn Model

Subscription businesses often use a simple model based on monthly ARPU (average revenue per user) and monthly churn. The intuition is straightforward: if customers churn at 5% per month, the average customer stays roughly 1 ÷ 0.05 = 20 months. Multiply the expected lifetime by monthly ARPU and you get revenue LTV. Multiply monthly ARPU by gross margin (and subtract variable fees) and you get profit LTV.

This calculator supports optional assumptions that make subscription LTV more realistic: an expansion rate (if customers grow their spend over time), a discount rate (to account for time value of money), and a maximum horizon (to avoid unrealistic infinity when churn is very low).

Why Churn Is the Most Sensitive Input

Churn is the percentage of customers that leave in a period. In a subscription model, it has an outsized impact on expected lifetime, and expected lifetime has an outsized impact on LTV. That means LTV is often far more sensitive to churn than to ARPU. If your churn estimate is off by a small amount, your LTV estimate can shift dramatically.

If you are unsure about churn, a good approach is to run scenarios: low churn, expected churn, and high churn. Then ask: does our acquisition strategy still make sense in the worst-case scenario? The scenarios tab is designed specifically for this kind of reality check.

Ecommerce LTV: AOV, Frequency, and Lifespan

Ecommerce and repeat-purchase brands often calculate LTV by combining three ideas: average order value (AOV), purchase frequency, and customer lifespan. If the average customer places 3 orders per year for 2 years, they place 6 orders total. Multiply by AOV to get revenue LTV. Multiply by profit per order to get profit LTV.

Many ecommerce brands also have important variable costs per order such as shipping, fulfillment, packaging, payment fees, marketplace fees, and returns. You can model those costs by using a variable fee percentage and/or a variable cost per order. The goal is to align the calculator inputs with how you actually measure contribution margin in your business.

What Is CAC and Why Payback Matters

CAC (customer acquisition cost) is what you pay, on average, to acquire one new customer. CAC can include ad spend, creative, agency fees, and other acquisition costs depending on how you define it internally. The critical relationship is between CAC and profit LTV: if profit LTV is lower than CAC, acquisition is not sustainable without a strategic reason (such as a longer-term LTV uplift you are not capturing).

Payback period adds a time dimension. Even if LTV:CAC looks great, a long payback can strain cash, especially when you are scaling. For subscriptions, payback is often estimated as CAC divided by monthly contribution profit. For ecommerce, payback depends on purchase frequency and profit per order. In both cases, payback provides a clear answer to: how long until we get our money back?

LTV:CAC Ratio: What It Tells You and What It Doesn’t

LTV:CAC is a simple ratio: profit LTV divided by CAC. It’s popular because it is easy to communicate and compare. But like any ratio, it can hide important details. A business with a 3.5 ratio but 18-month payback may be riskier than a business with a 3.0 ratio but 4-month payback. Similarly, if LTV is based on optimistic churn assumptions or ignores refunds, the ratio can look healthier than reality.

The right way to use LTV:CAC is as a guardrail, not a trophy. Choose a target ratio that reflects your category, your margin structure, your cash constraints, and your growth strategy, then use the CAC & Payback tab to translate that target into a maximum CAC you can afford.

How to Use This LTV Calculator Step by Step

Step 1: Pick your model

If you are a subscription business, start with the Subscription tab. If you are a repeat-purchase ecommerce brand, start with the Ecommerce tab. If you have both (for example, a subscription option plus one-time orders), you can calculate each separately and compare.

Step 2: Enter unit economics

Use realistic values based on finance or reporting dashboards. Gross margin should reflect your COGS and returns behavior. Add variable fees if your payment processing, marketplace, or refunds materially affect contribution.

Step 3: Validate sensitivity

Run scenarios for the input you are least certain about: churn, ARPU, or order frequency. If your CAC limits collapse under realistic downside scenarios, you likely need to improve unit economics (margin, returns, fees), improve retention, or adjust acquisition strategy.

Step 4: Translate into CAC and payback guardrails

Use the CAC & Payback tab to compute your current ratio and payback, then compare to targets. This is where LTV becomes actionable: you get a maximum CAC for a target ratio and a maximum CAC for a target payback period.

Common Questions That Change LTV Decisions

What if my LTV includes upsells and expansion?

If expansion is real and consistent, include a conservative expansion rate. If expansion is uncertain, treat it as upside rather than guaranteed. Many teams calculate a base LTV without expansion and a second LTV with expansion to separate “core” from “growth” value.

What if attribution ROAS looks strong but CAC is high?

ROAS measures revenue per ad dollar, not profit. A high ROAS does not guarantee a healthy CAC if gross margin is low or variable costs are high. That is why profit LTV and payback are essential, especially during scaling periods.

What if customers have different values by channel?

That’s common. Paid search customers may behave differently from influencer customers or organic customers. In that case, you can run the calculator multiple times with channel-specific churn, AOV, or frequency assumptions and compare maximum CAC by channel.

Limitations and Safe Use Notes

LTV is an estimate. It depends on churn, retention, frequency, and margin assumptions that can change over time. Use conservative inputs when making large budget decisions, and validate LTV against cohort analysis whenever possible. If you are using LTV for forecasting, align the model with your finance definitions (especially around refunds, shipping, and variable fees).