Customer lifetime value formula and CLV calculator: how to calculate LTV and the LTV:CAC ratio

How do you calculate customer lifetime value?

Multiply average order value by purchases per year, then by how many years a customer stays, then by your gross margin. An $85 order value bought 3.2 times a year for 2.5 years at 60 percent margin gives a customer lifetime value of $408. The first three numbers come from your store or billing system; the margin comes from finance.

The averages are where this goes wrong. Average order value pulled across all time hides the fact that first orders are usually smaller than repeat orders. Purchase frequency measured over a year that included a launch will overstate a normal year. If you have the data, calculate lifetime value per acquisition cohort rather than across the whole customer base, because a cohort tells you whether the customers you are buying today are better or worse than the ones you bought last year.

How do you calculate customer lifetime value from churn rate?

Customer lifespan in years equals 1 divided by your annual churn rate. A 40 percent annual churn rate gives a 2.5 year lifespan, and 25 percent gives 4 years. Feed that lifespan into the standard formula, or for subscriptions use the direct version: average revenue per account multiplied by gross margin, divided by the revenue churn rate.

This shortcut assumes churn stays flat, which it rarely does. Most businesses churn hardest in the first few months and then settle, so a single blended churn rate understates the value of customers who survive the early window. It also breaks completely when churn approaches zero, because dividing by a very small number produces a lifespan of decades. Cap the lifespan at something you can defend, commonly three to five years, rather than letting the arithmetic promise a customer who stays forever.

Should customer lifetime value use revenue or gross margin?

Use gross margin whenever you plan to compare lifetime value against acquisition cost. Lifetime revenue answers what a customer pays you. Gross-margin lifetime value answers what you keep, and only what you keep can fund the next customer. The $680 in lifetime revenue above becomes $408 once a 60 percent margin is applied, and that 40 percent gap is exactly the size of the mistake.

Most published lifetime value benchmarks do not say which version they used, which makes them close to useless for comparison. When someone quotes a lifetime value figure, ask whether cost of goods, shipping, payment processing, and returns have been taken out. The most conservative version, contribution margin lifetime value, strips all of them and is the number a CFO will accept. If you want a single rule: revenue for storytelling, gross margin for budgeting.

This is the same discipline that keeps a customer acquisition cost calculation honest. Both sides of the LTV:CAC ratio have to be measured on the same basis, or the ratio compares two different things and quietly flatters whichever channel you were hoping to scale.

What is the difference between CLV and LTV?

Nothing meaningful. CLV (customer lifetime value) and LTV (lifetime value) are used interchangeably for the same measure, with CLV slightly more common in ecommerce and LTV more common in SaaS and venture reporting. Some teams write CLTV or LCV. The formula does not change with the acronym.

The one place the letters matter is in finance, where LTV also means loan to value, an entirely unrelated mortgage ratio. If your reporting is read outside marketing, write out customer lifetime value the first time it appears.

How do you calculate customer lifetime value for SaaS?

For a subscription, purchase frequency is fixed by the billing cycle, so the formula collapses to average revenue per account multiplied by gross margin, divided by the revenue churn rate. A $99 a month plan at 80 percent gross margin with 2.5 percent monthly revenue churn gives $99 x 0.8 / 0.025, which is $3,168 in lifetime value.

Use revenue churn rather than logo churn if you have expansion revenue. A business losing 3 percent of accounts a month but growing the survivors by 2 percent has net revenue churn close to 1 percent, and lifetime value calculated on logo churn will badly understate it. Where net revenue retention is above 100 percent the formula breaks entirely, because mathematically the customer is worth an infinite amount. At that point switch to a fixed horizon: gross profit per account over three years is a claim you can defend to a board.

Pair the result with CAC payback period, because lifetime value says whether a customer is worth winning and payback says how long you fund them before finding out. A 10:1 ratio with a 26 month payback will still run a company out of cash.

How do you calculate customer lifetime value in Shopify?

Shopify reports order value and repeat purchase behavior, so you can read average order value and purchase frequency directly from its reports, but it does not know your gross margin and it does not see subscription billing that runs through Stripe. Pull order value and frequency from Shopify, apply your own margin, and take lifespan from cohort retention rather than a guess.

The harder problem is joining that lifetime value to what each channel cost. Shopify knows the revenue and nothing about ad spend; Google Ads and Meta know the spend and both claim the same orders. That is the gap a blended Shopify analytics dashboard closes, by putting store revenue and every channel's spend on the same board so lifetime value can be read per acquisition source instead of as one company-wide average.

Why a lifetime value calculated once a quarter is usually wrong

Lifetime value is a forecast dressed as a measurement. Every input moves: order value drifts with discounting, frequency moves with product mix, lifespan moves with retention, and margin moves with shipping and supplier costs. A figure calculated in January and used to set bids in June is describing a business that no longer exists.

The failure is rarely dramatic. It looks like a channel that used to clear 3:1 slipping to 2:1 over two quarters while everyone keeps quoting the old lifetime value, because nobody rebuilt the spreadsheet. Meanwhile acquisition cost has usually moved as well, and blended CAC is drifting up as the cheap audiences saturate. Both sides of the ratio go stale at once, in the same direction, which is why the problem stays invisible until a quarter closes badly.

MixedMetrics recomputes both sides continuously. Read-only connectors pull real revenue from Shopify and Stripe and real spend from Google Ads, Meta, and TikTok, then compute blended ROAS, blended CAC, MER, lifetime value, and the LTV:CAC ratio on the same reconciled numbers. When the ratio moves, you see it in the week it happens rather than the quarter it is reported. For the full set of numbers worth putting on that board, see the marketing KPIs that actually decide budget.