How to calculate customer lifetime value
Customer lifetime value (CLV or LTV) estimates the total revenue a customer generates while buying from your store. The customer lifetime value formula multiplies average order value by purchases per customer per year and the number of years you expect them to remain a customer.
Customer LTV = Average order value × Purchases per year × Customer lifespan in years
For example, a customer spending $75 per order, placing four orders per year and buying for three years generates $900 in lifetime revenue. Enter a 40% profit margin to calculate $360 in customer lifetime profit.
Where to find your inputs
- Average order value: divide revenue after discounts and refunds, excluding sales tax, by orders.
- Purchases per year: divide annual orders by the number of unique customers who purchased that year. Include one-time buyers.
- Customer lifespan: use a realistic assumption informed by older customer cohorts. Try several scenarios if you do not have enough history.
- Profit margin: use profit as a percentage of revenue, after the costs you want to include. Keep the same cost basis across scenarios, and leave it blank if unknown.
Use consistent revenue definitions and the same customer group for every input. A customer's first-to-last order gap alone does not establish their full lifespan, especially when they may still buy again.
Customer LTV and customer LTP
Customer LTV measures lifetime revenue. Customer LTP estimates lifetime profit by multiplying that revenue by the profit margin you enter. The costs included in your margin determine the costs reflected in the profit estimate.
Customer LTP = Customer LTV × Profit margin / 100
This calculator assumes your averages stay constant. It does not forecast individual customers, discount future cash flows, or use subscription churn. Check your estimates against observed customer cohorts as your store develops.
