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Calculate Customer Lifetime Value
Common Questions
Frequently Asked Questions
How do I calculate customer lifetime value for ecommerce?
The simple formula is LTV = Average Order Value x Purchase Frequency x Customer Lifespan. For a more accurate figure, use the advanced formula that accounts for gross margin, annual retention rate, and a discount rate to express future revenue in present-day terms. For example, if your AOV is $75, customers buy 3 times per year, and your average customer stays for 3 years, your simple LTV is $675.
What is a good LTV:CAC ratio for ecommerce?
The standard benchmark is 3:1 - your LTV should be at least three times your Customer Acquisition Cost. Below 1:1 means you are losing money on every customer acquired. Between 1:1 and 3:1 is technically viable but leaves little margin for error. Above 3:1 is healthy, and above 5:1 suggests strong unit economics where you may even have room to invest more aggressively in growth.
How can I increase customer lifetime value?
LTV has three levers: average order value, purchase frequency, and retention rate. Retention is usually the highest-leverage lever because it compounds across every future year. Practical tactics include post-purchase email flows, loyalty programmes, subscription offers for consumables, product bundling to increase AOV, and repurchase reminder campaigns based on predicted reorder windows.
What is the difference between LTV and CLV?
LTV (Lifetime Value) and CLV (Customer Lifetime Value) are the same metric, just different abbreviations used interchangeably in ecommerce and marketing. Some practitioners use CLV specifically to refer to the margin-adjusted version (accounting for COGS and gross profit) and LTV for the revenue-based version, but there is no universal standard. This calculator uses the terms interchangeably.
Why is LTV important for ecommerce businesses?
LTV tells you how much you can afford to spend acquiring a customer. Without it, you are flying blind on acquisition budgets. It also reveals which products, channels, and customer segments generate the most long-term value - often very different from which generate the most first-purchase volume. Brands that optimise for LTV tend to build more profitable, sustainable businesses than those focused purely on first-order metrics like ROAS and CAC.
How does retention rate affect customer lifetime value?
Retention rate has a compounding effect on LTV. A 10-percentage-point improvement in retention does not just add 10% more customers in year two - it propagates through every subsequent year. Moving from 60% to 70% retention on a 3-order-per-year customer can increase LTV by 30-50% depending on your discount rate and time horizon. The sensitivity analysis in the premium section of this calculator shows the exact impact for your specific numbers.