The core formula
A customer spending 50 per order, four times each year, for three years contributes 600 in projected gross revenue. With a 40% gross margin the gross-profit LTV is 240 before acquisition cost and fixed overhead.
Worked example
$80 × 4 purchases × 3 years = $960 revenue LTV; at 40% margin, $384 gross-profit LTV.
How to estimate LTV
- Estimate average order value or average revenue per customer for a consistent period.
- Estimate purchase frequency or recurring revenue over the expected customer relationship.
- Multiply by customer lifespan for a revenue-based LTV.
- Apply gross margin when you need gross-profit LTV for comparison with acquisition cost.
Revenue LTV vs gross-profit LTV
Revenue LTV describes expected top-line customer revenue. Gross-profit LTV removes the cost of delivering the product or service and is usually more useful when deciding how much acquisition spend the economics can support.
LTV is an estimate, not a fixed property of a customer. Retention, repeat purchase behavior, pricing and margin can change across cohorts, so mature businesses often calculate LTV separately by acquisition period or customer segment.
Common mistakes
- Comparing revenue LTV directly with a fully loaded CAC.
- Using an optimistic lifespan that is not supported by retention data.
- Combining customers with very different purchase patterns into one average without checking cohorts.
Use the calculator
Calculate LTV for e-commerce and subscription businesses and compare with CAC.
Open Customer Lifetime Value CalculatorRevenue LTV is not contribution profit
A customer spending 50 per order, four times each year, for three years contributes 600 in projected gross revenue. With a 40% gross margin the gross-profit LTV is 240 before acquisition cost and fixed overhead.
Treat the lifetime as an assumption
Retention, discounts, returns and changes in purchase frequency all affect realized value. For subscription businesses cohort retention curves can be more reliable than assuming every customer stays for a fixed number of years.
Frequently asked questions
Should I use revenue LTV or profit LTV?
Use the version that matches the decision. Gross-profit LTV is generally more informative when comparing against acquisition cost.
How do subscriptions estimate customer lifespan?
A simple model can use churn to estimate lifespan, but cohort retention data is more reliable when available.
Can LTV change over time?
Yes. Pricing, retention, purchase frequency, margin and customer mix can all change LTV.
What should I verify about treat the lifetime as an assumption?
Retention, discounts, returns and changes in purchase frequency all affect realized value. For subscription businesses cohort retention curves can be more reliable than assuming every customer stays for a fixed number of years.