What is Customer Lifetime Value (LTV)?
Customer Lifetime Value (LTV) is the total **profit** a business can expect from a single customer throughout their relationship. Understanding your LTV helps you make smarter, profit-driven decisions about customer acquisition, marketing budgets, and retention strategies.
How to Use This Calculator
- Enter your Average Initial Order Value - The average amount customers spend on their first purchase.
- Set the Avg. Repeat Purchases Per Year - How many additional times a typical customer buys from you annually.
- Enter the Average Value of Each Repeat Purchase - The average amount of subsequent orders.
- Enter Your Gross Margin (%) - This is crucial for accuracy. It's your revenue minus the cost of goods sold (COGS). For example, if a product sells for $100 and costs $40 to make, your gross margin is 60%.
- Enter Average Customer Lifespan - The average number of years a person remains an active customer.
- Input your New Customers Acquired Monthly - This helps calculate the total potential value from new customer cohorts.
Why This Matters
Make Better Marketing Decisions
When you know your customer's true profit value, you can define precise acquisition budgets and optimize ad spend for maximum ROI.
Target High-Value Customers
Identify and focus on acquiring customer segments that generate the most profit over their lifetime.
Increase Profitability
By focusing on profit-based LTV, businesses can achieve more sustainable and predictable growth.
Improve Customer Retention
Understanding LTV helps prioritize retention strategies that keep your most profitable customers coming back.
How We Calculate LTV
Our calculator uses an authentic, profit-focused algorithm to provide a more realistic valuation of your customers. This enhanced formula accounts for:
- Profit, Not Just Revenue: By incorporating your Gross Margin, we calculate the actual profit generated.
- Customer Lifespan: We project profits over the average customer's entire active period with your brand.
- Time Value of Money (Discount Rate): Future profits are discounted to their present-day value, providing a financially sound LTV figure (Net Present Value).
- Industry Benchmarks: Compare your results against industry averages for a clearer picture of your performance.
Note: This calculator provides estimates based on the information you provide. For a more detailed analysis specific to your business, request a free audit.