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How to calculate customer lifetime value

2026-05-20 11:42 · Paid Marketing

Learn a simple LTV formula, see an ecommerce example, and understand when to use revenue LTV or profit-based LTV.

Customer lifetime value, usually shortened to LTV, estimates how much a customer is worth over the full customer relationship.

A simple LTV formula is:

LTV = average order value x purchases per customer per year x average customer lifespan

For example, if average order value is $75, the average customer buys 4 times per year, and the average customer stays active for 2 years, revenue LTV is $600.00.

Revenue LTV is useful for a quick top-line estimate, but it can make acquisition look better than it really is. For paid marketing decisions, many teams also calculate gross profit LTV by multiplying revenue LTV by gross margin. If the $600.00 revenue LTV has a 50% gross margin, gross profit LTV is $300.00.

The LTV Calculator at /tools/ltv-calculator can estimate both revenue LTV and gross profit LTV. After calculating LTV, compare it with CAC, CPA, ROAS, and ROI to understand whether customer acquisition is likely to be sustainable.