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Customer Lifetime Value

BusinessSales and Conversion
Purchases

Revenue left after the cost of goods sold, as a share of revenue.

Retention
Customer lifespan from
Acquisition
Customer lifetime value (gross profit) —
Lifetime revenue per customer
—
Gross profit per customer per year
—
Lifespan used (years)
—
CLV to CAC ratio
—
CAC payback period
—

Customer lifetime value is the gross profit one customer brings in over the whole relationship: average order value × orders per year × years as a customer × gross margin. A customer spending $80 four times a year for four years at a 40% margin is worth $512. Compare it with acquisition cost; a CLV of three or more times CAC is a common target.

About this tool

Marketing leads, founders and e-commerce analysts use customer lifetime value to decide how much they can afford to spend winning a customer. Enter the average order value, how often a customer buys each year and your gross margin, then give the lifespan either directly in years or as an annual churn rate, which the calculator turns into an expected lifespan of 1 ÷ churn. Add the cost to acquire a customer and you also get the CLV to CAC ratio and the number of months of gross profit it takes to earn that cost back. Each figure comes with its working. The model is a simple average: it assumes steady spending and a constant churn rate, and it does not reduce future profit to today's money, so treat it as a planning estimate rather than a cohort forecast.

How to use it

  1. Describe a typical purchase

    Enter the average order value and how many orders a customer places in a year, then set the gross margin slider.

  2. Choose how to give lifespan

    Pick years as a customer if you know the average tenure, or annual churn rate if you track the share of customers lost each year.

  3. Add acquisition cost

    Optionally enter what it costs to win one customer to see the CLV to CAC ratio and the payback period in months.

  4. Read the working

    The steps list each multiplication so you can check the revenue, lifespan and margin figures against your own data.

Examples

$50 orders, 5 a year, 3 years

Average order value
50
Orders per customer per year
5
Gross margin
100
Customer lifespan from
Years as a customer
Average customer lifespan
3

Result Customer lifetime value (gross profit): $750.00
Lifetime revenue per customer: $750.00
Gross profit per customer per year: $250.00
Lifespan used (years): 3
CLV to CAC ratio: Not entered
CAC payback period: Not entered

  1. Annual revenue = 50 × 5 = 250
  2. Lifetime revenue = 250 × 3 = 750
  3. CLV = 750 × 100% = 750

With the margin set to 100% the result is lifetime revenue: 50 × 5 × 3 = $750 per customer.

25% churn, 40% margin, $128 CAC

Average order value
80
Orders per customer per year
4
Gross margin
40
Customer lifespan from
Annual churn rate
Customers lost per year
25
Cost to acquire one customer (CAC)
128

Result Customer lifetime value (gross profit): $512.00
Lifetime revenue per customer: $1,280.00
Gross profit per customer per year: $128.00
Lifespan used (years): 4
CLV to CAC ratio: 4 : 1
CAC payback period: 12 months

  1. Lifespan = 1 ÷ 25% = 4 years
  2. Annual revenue = 80 × 4 = 320
  3. Lifetime revenue = 320 × 4 = 1280
  4. CLV = 1280 × 40% = 512
  5. CLV ÷ CAC = 512 ÷ 128 = 4

Losing a quarter of customers a year implies a four-year average life. $320 a year at 40% margin is $128 profit, so the $128 CAC pays back in 12 months and CLV is 4 times CAC.

$300 CLV against a $400 CAC

Average order value
30
Orders per customer per year
10
Gross margin
50
Customer lifespan from
Years as a customer
Average customer lifespan
2
Cost to acquire one customer (CAC)
400

Result Customer lifetime value (gross profit): $300.00
Lifetime revenue per customer: $600.00
Gross profit per customer per year: $150.00
Lifespan used (years): 2
CLV to CAC ratio: 0.75 : 1
CAC payback period: 32 months

  1. Annual revenue = 30 × 10 = 300
  2. Lifetime revenue = 300 × 2 = 600
  3. CLV = 600 × 50% = 300
  4. CLV ÷ CAC = 300 ÷ 400 = 0.75

Two years of $150 annual profit gives $300, which is below the $400 spent to win the customer.

How it is calculated

CLV = AOV × F × L × M, with L = 1 ÷ C when churn is given; payback months = CAC ÷ (AOV × F × M ÷ 12)

AOV
Average order value
F
Orders per customer per year
L
Average customer lifespan in years
C
Annual churn rate as a fraction
M
Gross margin as a fraction
CAC
Cost to acquire one customer

Annual revenue per customer is order value times frequency. Multiplying by lifespan gives lifetime revenue, and applying gross margin turns that into the gross profit the customer contributes. When churn is constant, the expected tenure of a customer is the reciprocal of the churn rate, so 20% churn means five years on average. The CLV to CAC ratio compares that profit with acquisition spend, and payback divides CAC by monthly gross profit.

When not to use it

  • Subscription businesses with sharply different churn in the first months need a cohort model instead.
  • Do not use it to value a customer base for a sale, where future profit must be adjusted for time and risk.
  • Skip it when one or two large accounts dominate revenue, since an average hides them.

Common mistakes

  • Using revenue instead of gross profit makes CLV look several times larger than it is.
  • Entering monthly churn as if it were annual shortens the lifespan by roughly a factor of twelve.
  • Counting only paid-channel customers in CAC but all customers in CLV skews the ratio.
  • Averaging order value across wholesale and retail buyers mixes two different customer types.

Frequently asked questions

What is a good CLV to CAC ratio?

Many SaaS and e-commerce operators aim for about 3 : 1, meaning a customer returns three times what it cost to acquire them. Below 1 : 1 you lose money on every customer. Well above 5 : 1 can mean you are underspending on growth and could acquire more customers profitably.

How does churn rate become a lifespan?

If a constant share of customers leaves each year, the average customer stays 1 ÷ churn years. A 25% annual churn gives 4 years, 10% gives 10 years and 50% gives 2 years. The calculator shows the lifespan it used as a separate figure.

Why use gross margin rather than revenue?

Revenue includes the cost of the goods you shipped. Only the gross profit is available to pay for marketing and overheads, so comparing revenue-based CLV with acquisition cost overstates how much you can spend. Set the margin to 100% if you want the revenue figure.

What does the payback period tell me?

It is the number of months of gross profit from one customer needed to recover the acquisition cost. A $128 CAC with $128 of annual gross profit pays back in 12 months. Shorter payback frees cash sooner, which matters more for a business funding growth from its own revenue.

Where do I find average order value and frequency?

Divide total revenue for a year by the number of orders to get order value, and divide orders by the number of distinct customers to get frequency. Most e-commerce platforms and CRM reports show both directly.

Is historical or predicted CLV better?

Historical CLV sums what past customers actually spent and is exact but backward-looking. Predicted CLV, as here, projects averages forward and is useful for budgets. Running both and comparing them shows whether recent customers behave like older ones.

Cite this tool

Using this tool in an assignment, article or report? Copy a citation, or a link for your website.

APA

Tools Directory Editorial Team. (2026, October 27). Customer Lifetime Value. Tools Directory. Retrieved October 27, 2026, from https://tools.milunir.com/business/sales-and-conversion/customer-lifetime-value/

MLA

Tools Directory Editorial Team. “Customer Lifetime Value.” Tools Directory, 27 Oct. 2026, https://tools.milunir.com/business/sales-and-conversion/customer-lifetime-value/. Accessed 27 Oct. 2026.

Chicago

Tools Directory Editorial Team. “Customer Lifetime Value.” Tools Directory. Last modified October 27, 2026. Accessed October 27, 2026. https://tools.milunir.com/business/sales-and-conversion/customer-lifetime-value/.

Link<a href="https://tools.milunir.com/business/sales-and-conversion/customer-lifetime-value/">Customer Lifetime Value – Tools Directory</a>