CLV formula
CLV = Order value × Orders per year × Gross margin × Lifespan (years)
LTV:CAC = CLV ÷ Customer acquisition cost
LTV:CAC = CLV ÷ Customer acquisition cost
Example: Customers spend $50 per order, buy 4 times a year and stay 3 years, at a 60% gross margin. CLV is $360 ($600 of revenue). With a $90 acquisition cost, the LTV:CAC ratio is 4:1 and CAC is paid back in 9 months.
Ways to increase CLV
- Raise average order value with bundles and free-shipping thresholds.
- Increase frequency with email, subscriptions and loyalty programs.
- Reduce churn to extend lifespan — often the biggest lever.
Find your churn rate with the churn rate calculator.
Frequently asked questions
How do I calculate customer lifetime value?
CLV = average order value × purchases per year × gross margin × years retained. $50 × 4 × 60% × 3 = $360 of gross profit per customer.
What is a good LTV:CAC ratio?
A ratio of 3:1 or higher is a common target. Below 1:1 you lose money on every customer; far above 5:1 may mean you are under-investing in growth.
How do I estimate customer lifespan?
Use 1 ÷ annual churn rate. If 33% of customers leave each year, the average lifespan is about 3 years.
Should CLV use revenue or profit?
Profit (gross margin) is safer for decisions about acquisition spending, because revenue ignores the cost of what you sell.