Enter order value, purchase frequency, lifespan and margin to get LTV, plus the maximum CAC you can afford.
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.
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.
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.
Lifetime value adds up profit that arrives over years, and money that arrives later is worth less than money today. It could have been reinvested, and some of it will not arrive at all. The standard correction is to discount each year’s profit back to the present.
| Period | Profit that year | Worth today at 10% a year |
|---|---|---|
| Year 1 | $149.60 | $136.00 |
| Year 2 | $149.60 | $123.64 |
| Half of year 3 | $74.80 | $56.20 |
| Total | $374.00 | $315.84 |
The discounted figure is about 16 percent lower. That gap widens with longer lifetimes and higher discount rates, and it matters most for exactly the businesses that lean on LTV hardest: subscriptions with multi-year customer lives, where a large share of the claimed value sits three or four years out.
If you size a maximum CAC from undiscounted LTV, you are paying today’s money for future profit at face value. Use the discounted figure, or at least a lifetime short enough that the difference stops mattering.
A single blended LTV assumes a customer is a customer wherever they came from. They are not. Customers who arrive through a deep discount tend to buy less often and leave sooner. Customers who arrive by referral or organic search tend to stay longer. Customers bought through broad prospecting often sit somewhere between.
That matters because acquisition budgets are set by channel. If one channel brings customers worth $250 and another brings customers worth $500, a blended LTV of $375 tells the first channel it can afford too much and the second that it can afford too little. The account then over-invests in the worse customers and starves the better ones.
Split LTV by first-touch channel as soon as you have a few hundred customers in each. Then set the CAC ceiling per channel rather than for the business as a whole.
For any lifetime longer than a year, yes. Profit that arrives in year three is worth less than profit today. At a 10 percent annual discount rate, a 2.5 year LTV of $374 is worth about $316 in present terms, roughly 16 percent less.
We use Google Analytics to count visits, only if you allow it. Nothing you type into a calculator is ever sent. Privacy policy