ADSSystem

LTV calculator

Customer lifetime value, and the maximum acquisition cost it supports.
In one line

Enter order value, purchase frequency, lifespan and margin to get LTV, plus the maximum CAC you can afford.

LTV = AOV × Purchase frequency × Customer lifespan
$
yrs
%
Gross LTV -
Profit LTV-
First-year value-
Max CAC at 3:1-
Profit LTV is the figure to use for CAC decisions. Gross LTV overstates what you can spend.
How long the average customer staysLifetime is one over churn100%month 054%month 1229%month 24

The formula

LTV = AOV × Purchase frequency × Customer lifespan
  • Profit LTV = LTV × Gross margin
    Gross LTV is revenue over the relationship.
  • Profit LTV is what you keep, and it is the only version that should inform an acquisition budget.
  • Spending against gross LTV is how businesses grow revenue and lose money simultaneously.

The number you need: maximum CAC

Divide profit LTV by three and you have a defensible ceiling on customer acquisition cost. The three comes from the conventional 3:1 LTV to CAC ratio – enough headroom for overhead, forecast error and the customers who churn early.

With a profit LTV of $374, a maximum CAC of about $125 is supportable. That single number does more work than any dashboard: it decides which channels are viable, which campaigns get paused, and what you can afford to bid.

First-year value matters more than lifetime

A 2.5-year LTV is a forecast. First-year value is close to a fact, and it is what your cash flow runs on.

  • If CAC exceeds first-year value, you are financing growth out of working capital and the faster you grow the tighter cash becomes.
  • Plenty of businesses with excellent LTV to CAC ratios have run out of money this way.
  • Look at both, and let payback period rather than lifetime ratio decide how aggressively you spend.

Where LTV estimates go wrong

Averaging across segments.

Averaging across segments. A blended LTV hides that your top decile is worth ten times your median. Acquisition should be priced against the segment you are buying, not the mean.

Optimistic lifespan. It is the least knowable input and the one with the largest effect. If your business is under three years old, you do not have lifespan data – you have an assumption. Halve it and see whether the model still works.

Ignoring discounting. Revenue arriving in year three is worth less than revenue today. For long lifespans, discount future cash flows or you will overpay for customers now against money you may never see.

Frequently asked

Multiply average order value by purchases per year by average customer lifespan. Multiply the result by gross margin to get profit LTV, which is the figure to use for acquisition decisions.
Around 3:1 is the common benchmark. Below 1:1 you lose money per customer. Above 5:1 usually means you could profitably spend more on acquisition.
Profit LTV. Gross LTV counts revenue you never keep and will lead you to overpay for customers.