Customer Lifetime Value (LTV) Calculator

What formulas produce the three LTV figures?

Simple LTV = average order value × orders per year × lifespan in years. Margin-adjusted LTV multiplies that by the gross margin percentage. Discounted LTV adds up one year of margin-adjusted revenue per year of life, each divided by (1 + discount rate) raised to the year number. The defaults ($80, 4 orders, 3 years, 60% margin, 10% discount) give $960.00, $576.00 and $477.48.

How are fractional lifespans handled?

Exactly as entered in the simple and margin figures, so 2.5 years of $420 annual revenue counts as 2.5 times that. For the discounted figure, each whole year is discounted at the end of its year, and a fractional final year counts pro rata, discounted from the end of that year. A lifespan of 0 gives an LTV of $0.00.

How is the LTV:CAC ratio calculated?

Margin-adjusted LTV ÷ CAC, so it is based on gross profit, not revenue. With $576.00 and a $120 CAC the page shows 4.80x. If CAC is zero the ratio and the rating show “N/A (no CAC entered)”. The discounted LTV is not used in the ratio.

What do the ratings mean?

They are fixed cut-offs written into the tool: above 3 is “Excellent”, above 2 “Good”, above 1 “Acceptable”, and anything at or below 1 “Poor — reduce CAC or increase LTV”. A ratio of exactly 3.00 therefore reads “Good”. These are rules of thumb built into this page, not a universal standard, and a business’s right target depends on its cash position and growth plans.

How is the CAC payback period worked out?

CAC ÷ annual gross profit per customer × 12 months, where annual gross profit is order value × orders per year × gross margin. For the defaults that is $120 ÷ ($320 × 60%) × 12 = 7.5 months. It assumes purchases are spread evenly through the year and that the customer stays at least that long. With zero gross profit the page shows “N/A (no gross profit)”.

Why can discounted LTV be so much lower than the simple one?

Discounting reduces the value of money received later, and it is applied to margin-adjusted revenue, so it combines two reductions. Default: $960.00 simple, $576.00 after margin, $477.48 after discounting. With a discount rate of 0% the discounted and margin-adjusted figures are equal, as in the $500.00 and $500.00 of the five-year example.

What does the calculator assume about customer behaviour?

That every customer buys the same number of orders at the same value for exactly the stated lifespan. There is no churn curve, no growth in order value, no referral value, no shipping or servicing costs beyond what is reflected in the gross margin. If your customers drop out early on, use a lifespan that reflects the average, and consider calculating segments separately.