Customer Lifetime Value

Q: How do you calculate LTV?

CLV = Average Order Value × Purchase Frequency × Average Customer Lifespan

The total revenue a business expects to earn from a single customer over the entire duration of their relationship.

1 min readLast updated Apr 2026

Reviewed by Golden Digital strategy team·Reviewed against retention and cohort analysis workflows for Shopify brands·Golden Digital D2C planning benchmark

Formula

CLV=Average Order Value × Purchase Frequency × Average Customer Lifespan

Example: LTV = $45 × 12 orders/year × 1.5 years = $810 revenue LTV (or $486 profit LTV at 60% margin)

The total revenue a business expects to earn from a single customer over the entire duration of their relationship.

Use our free LTV Calculator to calculate your customer lifetime value and LTV:CAC ratio.

Why It Matters

LTV is the single most important metric for sustainable growth. It tells you exactly how much you can spend to acquire a customer while remaining profitable. Brands with high LTV can outbid competitors for ads, invest more in product quality, and weather economic downturns because each customer relationship compounds over time.

Formula

CLV=Average Order Value × Purchase Frequency × Average Customer Lifespan

Example: LTV = $45 × 12 orders/year × 1.5 years = $810 revenue LTV (or $486 profit LTV at 60% margin)

Benchmarks

A good LTV is $168 average. Top performers achieve 3x+ of CAC.

Good Performance

$168 average

Top Performers

3x+ of CAC

Practical Example

Scenario

A premium coffee subscription brand has customers who order $45/month on average, typically stay subscribed for 18 months, with a 60% gross margin.

Calculation

LTV = $45 × 12 orders/year × 1.5 years = $810 revenue LTV (or $486 profit LTV at 60% margin)

Result

With an $810 LTV, they can afford up to $270 CAC (3:1 ratio) and still be profitable. This gives them significant room to invest in customer acquisition.

In-Depth Explanation

CLV determines how much you can afford to spend on acquisition while remaining profitable. Average ecommerce CLV is approximately $168.

Pro Tips

1Calculate LTV by acquisition cohort and channel. Customers from organic search often have 40% higher LTV than those from paid social.
2Use a 12-24 month lookback for LTV calculations to get actionable data, rather than waiting for 'true' lifetime data.
3Track profit-based LTV, not just revenue LTV. A $500 revenue customer with 30% margins is worth less than a $400 customer with 70% margins.
4Segment LTV by first product purchased—certain entry products create more valuable long-term customers.

Common Mistakes to Avoid

Using average customer lifespan instead of median—a few long-term customers can skew averages and overstate typical LTV.

Not accounting for discounts and returns in LTV calculations, which can inflate the number by 15-25%.

Calculating LTV once and forgetting it. LTV changes with product mix, pricing, and retention efforts—recalculate quarterly.

Frequently asked questions

Focus on three levers: increase AOV (bundles, upsells), increase purchase frequency (subscriptions, loyalty programs, email marketing), and extend customer lifespan (improve product quality, customer service, and post-purchase experience).

They're the same metric—LTV (Lifetime Value) and CLV (Customer Lifetime Value) are used interchangeably in ecommerce. Some analysts use CLV for the calculation and LTV as shorthand.

You don't need to wait years. Use predictive LTV based on early customer behavior—first 90-day purchase patterns strongly predict long-term value. Many analytics tools can model this for you.

Put it to work

Related Terms

Customer Acquisition CostCAC

The total cost of acquiring a new paying customer, including all marketing and sales expenses divided by the number of new customers acquired over a specific period.

LTV:CAC Ratio

The ratio comparing customer lifetime value to customer acquisition cost. A 3:1 ratio is considered healthy.

Average Order ValueAOV

The average dollar amount customers spend per order/transaction.

Customer Retention RateCRR

The percentage of customers who remain active over a specific time period.

Cost Per AcquisitionCPA

The cost of acquiring a specific action through a particular campaign or channel—such as a purchase, sign-up, or lead.

Calculate Yours

Calculate your LTV in seconds.

Enter order value, how often customers buy and your margin. See lifetime value and, with your acquisition cost, how many months a new customer takes to pay it back. Calculator results are available without an account.

Open the LTV & LTV:CAC Calculator Tell us about your brand

Free calculator · Instant results

You'll talk directly to the people doing the work.

7.7x blended return at scale — seven figures attributed, across five straight quarters · Modern Prairie · Apr 2025–Jun 2026 Read the Modern Prairie case study