What is customer lifetime value?
Customer lifetime value (LTV or CLV) is the total profit a customer generates over their relationship with you. A store whose customers spend $75 per order, three times a year, for two years has a revenue LTV of $450 and, at a 60% gross margin, a margin LTV of $270.
The number tells you the most you can afford to spend acquiring a customer.
Revenue LTV, margin LTV and adjusted LTV
| Medida |
Formula |
Example |
| Revenue LTV |
AOV × frequency × lifespan |
$450 |
| Margin LTV |
revenue LTV × gross margin |
$270 |
| Chargeback-adjusted LTV |
margin LTV less refunds and disputes |
$258 |
| LTV:CAC |
adjusted LTV ÷ CAC |
5.2 at a $50 CAC |
Marketing teams quote revenue LTV because it is biggest. Finance wants margin LTV. Neither includes the orders that come back. The calculator shows all three so the LTV:CAC ratio is built on money you kept.
Historic LTV from your own orders
The formula above is a forecast built on averages. Before trusting it, measure what past customers actually did. A 12-month cohort takes under an hour with an order export.
- Take every customer whose first order was 12 to 24 months ago. Each has had a full year to come back.
- Sum their net revenue (after discounts and refunds) for the 12 months after the first order, then divide by the number of customers. That is 12-month revenue per customer.
- Count how many of them ordered again in the window. That share is your repeat rate, and 1 minus it is annual churn.
- Multiply 12-month revenue by gross margin, then by expected lifespan (1 ÷ annual churn) to get margin LTV. Cap lifespan at 3 years unless the data shows longer.
| Annual retention |
Annual churn |
Expected lifespan |
| 40% |
60% |
1.7 years |
| 60% |
40% |
2.5 years |
| 75% |
25% |
4 years |
| 90% |
10% |
10 years |
Early repeat orders inflate frequency. A customer who buys three times in month one is not a 36-orders-a-year customer. Use a full 12 months of behavior before you annualize anything.
Historic LTV answers "what did customers return". Predictive LTV answers "what will this cohort return" and needs a model. For CAC targets, historic LTV with a capped lifespan is the safer number.
LTV:CAC ratio benchmarks
3:1
Healthy
standard target for ecommerce and SaaS
Under 1:1
Losing money
every customer costs more than they return
5:1 and up
Under-investing
you can afford to spend more on growth
12 months
CAC payback target
for subscription businesses
3.0
LTV:CAC the calculator flags as healthy
Enter CAC in the calculator to get the ratio and a payback estimate. Ratios above 5 usually mean acquisition spend is too low rather than efficiency is high.
Why disputes hit LTV twice
A refund costs you the processing fee and the shipping. A chargeback costs the sale, the fee and a dispute fee. The customer is usually gone too.
In subscriptions, a disputed renewal cancels the account. A $49-a-month customer with a 25-month expected lifespan becomes a $49 loss. The adjusted LTV line counts both effects.
There is a third cost the per-customer math misses. Card networks monitor dispute ratios across the whole account, so a run of disputes puts every other customer's revenue at risk.
1.5%
Visa VAMP excessive threshold for merchants from April 1, 2026
Visa's ratio counts fraud reports plus fraud and non-fraud disputes against settled transactions each month (minimum 1,500 events). Merchants above it pay $8 per dispute or fraud report on top of the lost sale. Keeping disputes under 1% protects LTV at the account level, not just per customer.
How to raise customer lifetime value
Increase purchase frequencyReplenishment reminders, subscriptions on consumables and post-purchase email flows move orders per year more than any other lever.
Raise AOVBundles, free-shipping thresholds set 20% to 30% above current AOV, and cross-sells at checkout.
Extend lifespanFor subscriptions, cut involuntary churn: dunning emails, card updater services, and retry logic recover 20% to 40% of failed renewals.
Prevent disputes before they fileClear statement descriptors, renewal reminders and 24-hour support replies stop the "unrecognized charge" disputes that end relationships.
Segment LTV by channelCustomers from paid social often have half the LTV of search customers; set CAC targets per channel.
Recompute quarterlyChurn and AOV drift; an LTV from last year misprices this year's acquisition.
Perguntas frequentes
How do you calculate customer lifetime value?
Multiply average order value by purchase frequency per year and customer lifespan in years, then by gross margin. $75 × 3 × 2 × 60% = $270. For subscriptions, divide monthly revenue per customer by monthly churn and multiply by margin.
What is a good LTV to CAC ratio?
3:1 is the common target. Below 1:1 loses money on every customer; above 5:1 usually means you could grow faster by spending more.
What is the difference between LTV and CLV?
Nothing. Lifetime value and customer lifetime value are the same metric; LTV is more common in SaaS, CLV in retail.
Should LTV use revenue or profit?
Profit (gross margin) if you are setting CAC targets. Revenue LTV overstates what you can spend by the inverse of your margin.
How do chargebacks affect lifetime value?
A disputed order loses the sale, the processing fee and a dispute fee, and the customer rarely returns. At 3% refunds and a 0.5% dispute rate the adjusted LTV is about 4% lower than margin LTV; in subscriptions, a disputed renewal usually ends the lifespan early.
How do I calculate LTV for a subscription business?
Monthly ARPU divided by monthly churn gives expected lifetime revenue; multiply by gross margin. $49 ÷ 4% × 60% = $735. Expected lifespan is 1 ÷ churn, 25 months here.
What is a good customer lifetime value?
There is no universal number; a good LTV is at least three times CAC and pays CAC back within 12 months. A $270 margin LTV is strong against a $50 CAC and weak against a $150 CAC. Compare LTV by channel and cohort, and watch the trend quarter to quarter.
Should lifetime value be discounted for time?
For lifespans under two years the difference is small and most merchants skip it. For longer lifespans, discount future years: at a 10% rate, the $270 two-year example falls to about $234. Finance teams and investors usually expect the discounted version when LTV supports a valuation.
What is the difference between historic and predictive LTV?
Historic LTV measures what a past cohort actually returned over a fixed window, such as 12 months. Predictive LTV forecasts future spend from early behavior using a model. Historic is simpler and harder to overstate; predictive is useful for setting CAC bids on new customers before their history exists.
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