Customer lifetime value calculator

How it is worked out

• Revenue LTV = order value times orders per year times years a customer keeps buying.
• Margin LTV = revenue LTV times your margin before ads. This is the version to compare with CAC.
• LTV:CAC = margin LTV divided by what you pay to get a customer.

Example: a $40 desk organizer store

• Customers order 1.6 times a year for 2 years: $128.00 in revenue each.
• At a 40% margin, that is $51.20 in margin over their lifetime.
• Getting a customer costs $25.00, so LTV:CAC is 2.0x.
• To reach 3:1, the store would pay at most $17.07 per new customer, or sell more to the ones it has.

Questions

How do you calculate customer lifetime value?

• Average order value times orders per year times years a customer keeps buying.
• Multiply by your margin to compare it with CAC.

What is customer lifetime value?

• The money a customer brings you over the whole time they keep buying.
• Use margin, not revenue, when you compare it with what you pay to get them.

What is a good LTV:CAC ratio?

• 3:1 is the target most often quoted. Below 1:1 every customer loses money.
• Between 1:1 and 3:1 there is little left for staff, rent and apps.

Should I use revenue or margin for LTV?

• Margin. $128 in sales at a 40% margin brings you $51.20.
• Comparing $128 with your CAC makes ads look 2.5 times better than they are.