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Customer lifetime value calculator: LTV, CAC and payback
Convertica's free customer lifetime value calculator works out LTV two ways: from orders, for a store, and from monthly revenue and churn, for a subscription. A third calculator turns sales and marketing cost into CAC, the LTV to CAC ratio and the payback period. Any currency, no sign-up. LTV here means customer lifetime value, also written CLV, not the loan-to-value ratio used in lending.
Short answer
A customer lifetime value calculator estimates the gross profit one customer brings in over the whole relationship. For a store, multiply average order value, purchases per year, years as a customer and gross margin. For a subscription, divide monthly gross profit per account by monthly churn. Compare the result with customer acquisition cost (CAC).
- LTV, CLV and CLTV are three names for the same number: customer lifetime value.
- Use gross profit, not revenue, when you compare lifetime value with acquisition cost.
- An LTV to CAC ratio below 1 loses money on every new customer, and the payback period shows how long your cash is tied up.
- The churn formula assumes churn never changes, with no upgrades and no discounting, so treat a long lifetime as an upper limit.
- A higher conversion rate lowers CAC from the same traffic, and better repeat-purchase flows raise LTV, so the ratio can improve without more ad spend.
Customer lifetime value calculator: store model
For a store or any business with separate orders. Free to use, no sign-up, any currency. The result updates as you type.
Customer lifetime value (gross profit)
192.00
Revenue LTV: 80 average order value × 3 purchases a year × 2 years = 480.00 per customer.
Gross-profit LTV: 480.00 × 40% gross margin = 192.00. This is the figure to compare with acquisition cost.
That is 6 orders over the customer's lifetime, and 8.00 of gross profit per customer per month.
Formula
revenue LTV = average order value * purchases per year * lifespan in years
gross-profit LTV = revenue LTV * gross marginSubscription LTV calculator: revenue and churn
For a subscription billed every month. Lifetime comes from your churn rate.
Customer lifetime value (gross profit)
1,600.00
Average customer lifetime: 1 ÷ 2.5% monthly churn = 40 months (about 3.3 years).
Gross profit per account per month: 50 × 80% gross margin = 40.00.
Gross-profit LTV: 40.00 ÷ 2.5% = 1,600.00 per customer. Revenue LTV, before margin: 2,000.00.
Assumes churn stays the same every month, with no upgrades, downgrades or discounting of future months.
Formula
customer lifetime in months = 1 / monthly churn rate
gross-profit LTV = revenue per account per month * gross margin / monthly churn rateAssumes the same churn rate every month, no upgrades or downgrades and no discounting of future months. Zero churn has no answer, because nobody would ever leave.
CAC and LTV to CAC ratio calculator
What a new customer costs, how that compares with their lifetime value, and how long the cost takes to earn back.
LTV to CAC ratio
2.56:1
CAC: 12,000 sales and marketing cost ÷ 160 new customers = 75.00 per new customer.
LTV to CAC ratio: 192.00 lifetime value ÷ 75.00 CAC = 2.56. Each 1 spent on winning customers brings back 2.56 over a customer's lifetime.
Above 1: each new customer leaves about 117.00 after their acquisition cost, before overheads.
CAC payback: 75.00 ÷ 8.00 gross profit per customer per month = 9.4 months before a new customer has earned back their acquisition cost.
Formula
CAC = sales and marketing cost / new customers
LTV to CAC ratio = gross-profit LTV / CAC
CAC payback in months = CAC / gross profit per customer per monthWhat is customer lifetime value (LTV)?
Customer lifetime value (LTV) is the gross profit a business expects to earn from one customer over the whole time they stay a customer. It turns a stream of orders or monthly payments into one figure per customer, and that figure sets the most a business can afford to spend to win a customer like them.
LTV, CLV and CLTV are the same metric: lifetime value, and customer lifetime value abbreviated two ways. Which one you see depends on the tool or the team; the calculation does not change. What does change is whether the number is revenue or gross profit, so check before you compare two figures. In lending, LTV means loan-to-value, which is a different calculation and not what this page covers.
How to use the customer lifetime value calculator
- Pick the model. Separate orders, as in a store: the first calculator. A subscription billed monthly: the second.
- Enter averages from your own data. Take them from the same period and the same group of customers.
- Enter gross margin. That makes the result profit, which is what pays for marketing, and not revenue.
- Carry the result down. "Compare this LTV with CAC" copies the lifetime value and the monthly gross profit into the third calculator.
- Enter what you spent and what it won. Sales and marketing cost and new customers for the same period give CAC, the ratio and the payback period.
What is the customer lifetime value formula?
The customer lifetime value formula multiplies what a customer spends by how long they keep spending, then by gross margin. For separate orders it is average order value × purchases per year × years as a customer × gross margin. For a subscription it is revenue per account per month × gross margin ÷ monthly churn rate.
LTV (orders) = average order value * purchases per year * years as a customer * gross margin
LTV (subscription) = revenue per account per month * gross margin / monthly churn rate| Figure | Formula | Use it for |
|---|---|---|
| Revenue LTV | Average order value × purchases per year × lifespan in years | Comparing customer segments with each other. Never against CAC |
| Gross-profit LTV | Revenue LTV × gross margin | Deciding what you can afford to pay for a customer |
| Customer lifetime | 1 / monthly churn rate, in months | Turning a churn rate into a lifespan |
| Subscription LTV | Revenue per account per month × gross margin / monthly churn rate | Monthly subscriptions with steady churn |
| CAC | Sales and marketing cost / new customers | What a new customer costs to win |
| LTV to CAC ratio | Gross-profit LTV / CAC | Whether acquisition pays for itself |
| CAC payback | CAC / gross profit per customer per month | How long the cash is tied up |
The guide to ecommerce metrics shows where lifetime value sits beside average order value, repeat purchase rate and the other numbers a store tracks.
How to calculate LTV for an online store: a worked example
To calculate LTV for a store, multiply average order value by purchases per year and by the years a customer keeps buying, then apply gross margin. The numbers below are the default values in the first calculator, made up to show the arithmetic; they are not a benchmark.
- Average order value 80, 3 purchases a year: 80 × 3 = 240 of revenue per customer per year.
- Customers keep buying for 2 years: 240 × 2 = 480.00 of revenue LTV, from 6 orders.
- Gross margin is 40%: 480.00 × 0.40 = 192.00 of gross-profit LTV.
- Spread over 24 months, that is 8.00 of gross profit per customer per month.
- The first order brings in 80 × 0.40 = 32.00. The other 160.00 depends on the customer coming back.
Everything after the first order is a forecast, so use the lifespan and the purchase frequency your order history shows, not the ones you hope for.
How to calculate LTV from churn: a subscription example
To calculate LTV from churn, divide 1 by the monthly churn rate to get the average customer lifetime in months, then multiply by the gross profit each account brings in per month. At 2.5% monthly churn the average lifetime is 1 / 0.025 = 40 months. Again, the numbers are illustrations, not benchmarks.
- Lifetime: 1 / 0.025 = 40 months, about 3.3 years.
- Gross profit per account per month: 50 × 0.80 = 40.00.
- Gross-profit LTV: 40.00 × 40 = 1,600.00. Before margin, revenue LTV is 2,000.00.
- If 30,000 of sales and marketing cost wins 60 accounts, CAC is 500.00, the LTV to CAC ratio is 3.20 and payback takes 12.5 months.
Churn is the input that moves this result most, because the rest is divided by it:
| Monthly churn | Average lifetime (months) | Gross-profit LTV |
|---|---|---|
| 5% | 20 | 800.00 |
| 4% | 25 | 1,000.00 |
| 3% | 33.3 | 1,333.33 |
| 2.5% (example) | 40 | 1,600.00 |
| 2% | 50 | 2,000.00 |
Moving churn from 2.5% to 2% takes LTV from 1,600.00 to 2,000.00, a change of +25.0%, at the same price and the same number of sign-ups.
What the churn formula assumes
- Constant churn. The same share of customers leaves every month. If new customers leave faster than long-standing ones, one average rate misstates the lifetime.
- No expansion. Every account pays the same amount for its whole life: no upgrades, downgrades or add-ons.
- No discounting. Profit that arrives in month 40 counts the same as profit that arrives today.
When a decision rests on the number, cap the lifetime at the period you have actually observed, or build LTV from cohorts as described under historic vs predictive LTV.
How to calculate customer acquisition cost (CAC)
Customer acquisition cost (CAC) is the total sales and marketing cost for a period divided by the new paying customers won in that period. With 12,000 spent and 160 new customers, CAC is 12,000 / 160 = 75.00. Count every cost of winning customers, not ad spend alone.
CAC = sales and marketing cost / new customersWhat belongs in the cost:
- Ad spend on every channel.
- Salaries and commissions for the people who do sales and marketing.
- Agency and freelancer fees.
- Software, creative production and content.
- Discounts and free trials given to win the first sale.
Leaving costs out is the easiest way to flatter the ratio. Add 6,000 of salaries, fees and tools to the 12,000 of ad spend in the example and CAC rises from 75.00 to 112.50, while the LTV to CAC ratio falls from 2.56 to 1.71.
CAC is not the same as CPA. Cost per acquisition counts any conversion you choose for one campaign against its ad cost; CAC counts new paying customers against all sales and marketing cost. The CPA formula guide compares the two. For traffic bought by the click, CAC starts with what a click costs: see the CPC calculator.
How to read the LTV to CAC ratio
The LTV to CAC ratio is gross-profit lifetime value divided by customer acquisition cost. It says how many units of gross profit a customer brings back for each unit spent to win them. With an LTV of 192.00 and a CAC of 75.00, the ratio is 192.00 / 75.00 = 2.56.
| LTV to CAC ratio | What it means |
|---|---|
| Below 1 | A customer costs more to win than the gross profit they bring back. Every new customer adds to the loss, so growing faster loses money faster. |
| Exactly 1 | A customer pays back what they cost and nothing more. Overheads are not covered. |
| Above 1 | Each customer leaves gross profit after their acquisition cost. Whether it is enough depends on your overheads and on how long the payback takes. |
What is the CAC payback period?
The CAC payback period is CAC divided by the gross profit a customer brings in per month: the number of months before a new customer has earned back what they cost to win. In the store example it is 75.00 / 8.00 = 9.4 months. The ratio says whether acquisition pays; payback says how long your cash is tied up while it does.
A store earns the first order's profit on day one and the rest in lumps, so treat a monthly figure as an average. A subscription earns it month by month, so the figure is closer to what happens.
What is a good LTV to CAC ratio?
A good LTV to CAC ratio is one above 1 by enough to cover your overheads, with a payback period you can fund. No single figure fits every business, because margins, overheads, growth plans and access to cash all differ. Judge yours against your own costs and your own cash position.
The figure quoted most often is three. It goes back at least to the venture investor David Skok, whose guide SaaS Metrics 2.0 gives two guidelines for judging whether a subscription software business is viable. One compares LTV with CAC: he writes that the best SaaS businesses have a ratio higher than 3. The other is the months it takes to recover CAC, where his model shows profitability suffering beyond 12 months. He stresses that these are "only guidelines". They describe subscription software companies and were not written as a rule for a store or a service business.
How does conversion rate change LTV and CAC?
Conversion rate moves both sides of the LTV to CAC ratio. When more of the same visitors become customers, CAC falls, because the same spend is divided by more customers. When onboarding, checkout and repeat-purchase flows work better, customers stay and buy again, so LTV rises. The ratio improves without a larger ad budget.
CAC from paid clicks = cost per click / conversion rateThe store example again: 12,000 of ad spend buys 8,000 clicks at 1.50 each, and 2.00% of them become customers. The spend and the clicks stay the same in every row. All figures are illustrations of the arithmetic.
| Scenario | Conversion rate | New customers | CAC | Purchases a year | LTV | LTV to CAC | Payback (months) |
|---|---|---|---|---|---|---|---|
| Today | 2.00% | 160 | 75.00 | 3 | 192.00 | 2.56 | 9.4 |
| Higher conversion rate | 2.50% | 200 | 60.00 | 3 | 192.00 | 3.20 | 7.5 |
| More repeat orders | 2.00% | 160 | 75.00 | 3.5 | 224.00 | 2.99 | 8 |
| Both | 2.50% | 200 | 60.00 | 3.5 | 224.00 | 3.73 | 6.4 |
Converting 2.50% of clicks instead of 2.00% takes CAC from 75.00 to 60.00. Half an order more per year takes LTV from 192.00 to 224.00. Together the ratio moves from 2.56 to 3.73 and payback from 9.4 months to 6.4, on the same 12,000 of spend.
To find your own rate, use the conversion rate calculator. For where the customers are lost, the guides to ecommerce conversion optimization and SaaS conversion rate optimization go through the funnel step by step, and Convertica's free CRO audit checks the page your traffic lands on.
The LTV side, in a real test
In Convertica's first split test for JustThrive, a health company that sells supplements, a less cluttered product page with trust signals beside Add to Cart and a "Best Value" auto-ship option raised auto-ship subscriptions. The test measured subscriptions and revenue, not lifetime value itself. But a subscription is repeat orders, which is the purchases per year input in the calculator above.
+41.5%
Auto-ship subscriptions, Test 1, 7 December to 15 January
Source: JustThrive, split test 1 vs the original page, 98% significance
First order or lifetime: where do the ads break even?
On the first order alone, the store in the example breaks even at a ROAS of 1 / 0.40 = 2.50. An order of 80 leaves 32.00 of gross profit, so a CAC of 75.00, a first-order ROAS of 1.07 if all of it is ad spend, loses 43.00 on day one.
Count the lifetime and the same customer leaves 117.00 after their acquisition cost. The ads would break even at a CAC of 192.00, which is a first-order ROAS of 0.42. That room is real only if customers do come back, and you have to fund the wait. The ROAS guide covers break-even ROAS on the first order.
Historic vs predictive LTV
Historic LTV adds up the gross profit customers have already brought in. Predictive LTV estimates what they will bring in over the rest of the relationship. Both calculators on this page are simple predictive models built from averages: quick to run, and only as good as the averages you enter.
| Historic LTV | Predictive LTV | |
|---|---|---|
| What it is | Gross profit per customer received so far | Gross profit per customer expected over the whole relationship |
| How to get it | Add up the orders or payments of a group of customers and apply gross margin | Averages times an expected lifespan, 1 / churn, or a statistical model |
| Strength | It is a record. Nothing is assumed | It gives you a limit for CAC today |
| Weakness | It understates recent customers and says nothing about the future | It is wrong whenever the averages or the churn rate change |
A middle path is the cohort view. Group customers by the month of their first order, then add up the gross profit each group has produced per customer after 6, 12 and 24 months. The longest window you have is a historic LTV you can plan against without assuming a lifespan.
How to calculate LTV in Excel or Google Sheets
To calculate LTV in Excel or Google Sheets, put each input in its own cell and multiply them. With average order value in B2, purchases per year in B3, lifespan in years in B4 and gross margin in B5, gross-profit LTV is =B2*B3*B4*B5. The same formulas work in both programs.
| Cell | What it holds | Type or formula | Example |
|---|---|---|---|
| B2 | Average order value | Typed in | 80 |
| B3 | Purchases per year | Typed in | 3 |
| B4 | Lifespan in years | Typed in | 2 |
| B5 | Gross margin | Typed in as a percentage | 40% |
| B6 | Revenue LTV | =B2*B3*B4 | 480.00 |
| B7 | Gross-profit LTV | =B6*B5 | 192.00 |
| B8 | Sales and marketing cost | Typed in | 12,000 |
| B9 | New customers | Typed in | 160 |
| B10 | CAC | =IF(B9=0,"",B8/B9) | 75.00 |
| B11 | LTV to CAC ratio | =IF(OR(B10="",B10=0),"",B7/B10) | 2.56 |
| B12 | CAC payback in months | =IF(B10="","",B10/(B2*B3*B5/12)) | 9.4 |
For a subscription, put revenue per account per month in B2, gross margin in B3 and monthly churn in B4 as a percentage, then use =IF(B4=0,"",B2*B3/B4). Each IF leaves the cell empty where the formula has no answer, at zero churn or zero customers, in place of a divide-by-zero error.
Common LTV and CAC mistakes
The most common LTV mistake is comparing revenue LTV with CAC. In the store example, the revenue LTV of 480.00 against a CAC of 75.00 gives a ratio of 6.40, when the gross-profit ratio is 2.56. That is the same business looking 2.5 times healthier than it is.
- Mixed periods. Monthly churn with annual revenue, or a year of costs divided by a quarter of customers.
- A lifespan you hope for. Projecting years of orders from a few months of data. Use the period you have observed.
- Costs left out of CAC. Salaries, agency fees and tools belong in it.
- Returning customers counted as new. They make CAC look lower, and their orders are already in LTV.
- One blended number. Customers from different channels or plans can have very different LTV and CAC. An average can hide a channel that loses money.
- The ratio without the payback. A high ratio that takes years to pay back can still leave a business short of cash.
- Spend and customers from different months. When a sale takes weeks to close, this month's spend wins next month's customers. Match the cost to the customers it won.
Related calculators
These calculators work out the numbers that feed lifetime value and CAC.
See all free tools and how they fit together.
LTV and CAC questions
What does a customer lifetime value calculator do?
A customer lifetime value calculator turns a few averages into the gross profit one customer is expected to bring in over the whole relationship. This one has two models: order value, purchase frequency and lifespan for a store, and monthly revenue, margin and churn for a subscription. A third calculator compares the result with acquisition cost.
What is the customer lifetime value formula?
Customer lifetime value = average order value × purchases per year × years as a customer × gross margin. For example, 80 × 3 × 2 × 40% = 192.00. For a subscription, use revenue per account per month × gross margin ÷ monthly churn rate: 50 × 80% ÷ 2.5% = 1,600.00.
How do you calculate LTV from churn?
Divide 1 by the monthly churn rate to get the average customer lifetime in months, then multiply by the monthly gross profit per account. At 2.5% monthly churn the lifetime is 1 / 0.025 = 40 months, so an account that brings in 40.00 of gross profit a month has an LTV of 1,600.00. This assumes churn never changes.
Is LTV the same as CLV and CLTV?
Yes. LTV (lifetime value), CLV and CLTV (both customer lifetime value) are the same metric under different abbreviations. What does vary is the definition behind the label: some reports mean revenue and others mean gross profit, so check which one you have before you compare two figures.
Should LTV use revenue or gross profit?
Use gross profit whenever LTV is compared with acquisition cost, because the cost of the goods or the service has to be paid before anything is left to cover marketing. Revenue LTV is fine for comparing customer segments with each other. In the store example on this page the two are 480.00 and 192.00.
How do you calculate CAC?
CAC = total sales and marketing cost / new paying customers, for the same period. For example, 12,000 spent to win 160 new customers is a CAC of 75.00. Include salaries, agency fees and tools as well as ad spend, and count only new customers, not repeat buyers.
What is a good LTV to CAC ratio?
A good LTV to CAC ratio is above 1 by enough to cover your overheads, with a payback period you can fund. Below 1, every new customer loses money. The often-quoted three to one goes back to David Skok's guidelines for subscription software companies, which he calls only guidelines. It is not a rule for every business.
What is a good customer lifetime value?
There is no good customer lifetime value on its own. A lifetime value is good or bad only against what the customer cost to win and how long the money takes to come back. An LTV of 192.00 is profitable at a CAC of 60.00 and a loss at a CAC of 240.00.
What is the CAC payback period?
CAC payback is the number of months a new customer takes to earn back what it cost to win them: CAC divided by gross profit per customer per month. A CAC of 75.00 against 8.00 of monthly gross profit pays back in 9.4 months. The shorter the payback, the sooner that cash can win the next customer.
How do I calculate customer lifetime value in Excel or Google Sheets?
Put average order value in B2, purchases per year in B3, lifespan in years in B4 and gross margin in B5, then enter =B2*B3*B4*B5. For a subscription, with monthly revenue per account in B2, gross margin in B3 and monthly churn in B4, use =IF(B4=0,"",B2*B3/B4).
How does conversion rate affect the LTV to CAC ratio?
A higher conversion rate lowers CAC, because the same spend wins more customers. In the example on this page, converting 2.50% of 8,000 clicks instead of 2.00% takes CAC from 75.00 to 60.00 and the ratio from 2.56 to 3.20 at the same spend. Better repeat-purchase flows raise the LTV side as well.
Is this a loan-to-value (LTV) calculator?
No. This page calculates customer lifetime value, the marketing meaning of LTV. In lending, LTV stands for loan-to-value: the loan amount divided by the value of the property or asset, shown as a percentage. The two share an abbreviation and nothing else.