Customer Lifetime Value (LTV)
Estimate the total revenue a single customer generates for your brand
Projected LTV
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How to use the LTV Calculator
Customer Lifetime Value (LTV) is one of the most important metrics for scaling. It represents the total amount of money a customer is expected to spend in your business during their lifetime. To calculate this, you need the Average Order Value (how much they spend per visit), the Purchase Frequency (how many times they buy per year), and the Customer Lifespan (how many years they continue to buy from you). The formula used is: $LTV = \text{AOV} \times \text{Frequency} \times \text{Lifespan}$.
- Marketing Budget: Knowing your LTV helps you decide how much you can spend to acquire a customer (CAC). If LTV is $500, spending $50 to get that customer is a great deal!
- Retention Focus: Increasing your lifespan by just 1 year can drastically jump your LTV without spending more on ads.
- Segmentation: You can calculate different LTVs for "VIP customers" vs. "One-time buyers" to target them differently.
Why is LTV higher than my first sale? +
LTV accounts for repeat business. If a customer buys a $10 pizza today but comes back every month for 2 years, their LTV is $240, not just $10.
What is the LTV to CAC ratio? +
It is the relationship between the value of a customer and the cost to get them. A healthy ratio is 3:1. If your ratio is 1:1, you are barely breaking even.
How can I increase my LTV? +
You can increase LTV by upselling (higher AOV), launching loyalty programs (higher frequency), or improving customer service (longer lifespan).
Is this tool suitable for SaaS? +
Yes. For SaaS, the AOV is your monthly subscription price and the frequency is 12 (for 12 months in a year).