Estimate how much revenue and profit a typical customer generates over their entire relationship with your business.
Frequently Asked Questions
How do you calculate customer lifetime value (LTV)?
LTV = Average Order Value x Purchase Frequency (per year) x Average Customer Lifespan (years). This gives total revenue expected from a typical customer.
What is the LTV:CAC ratio and why does it matter?
It compares how much profit a customer generates (LTV) against how much it costs to acquire them (CAC). A ratio of 3:1 or higher is a commonly cited benchmark for a sustainable, profitable business model.
Should I use revenue or profit for LTV?
Revenue-based LTV is simpler and shows top-line value, but profit-based LTV (after applying your margin) gives a more realistic picture when comparing against acquisition costs.