CLV Calculator
Estimate Customer Lifetime Value from average purchase value, purchase frequency, and customer lifespan.
CLV : CAC Ratio
Healthy — strong return on acquisition spend
How Customer Lifetime Value (CLV) is calculated
Customer Lifetime Value estimates the total revenue (or profit) a business can expect from a single customer over the entire span of the relationship. The core formula multiplies three inputs together:
CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan
Average purchase value and purchase frequency combine into the annual customer value — how much revenue one customer generates per year. Multiplying that by the average number of years a customer stays gives the lifetime total. Enabling the gross margin toggle converts the revenue-based figure into a profit-based one, since not every dollar of revenue is a dollar of profit.
Comparing CLV against Customer Acquisition Cost (CAC) tells you whether your growth spend is sustainable. A CLV:CAC ratio below 1:1 means you lose money on every customer; a ratio of 3:1 or higher is the commonly cited benchmark for a healthy, scalable business.
Built and maintained by Meet Shah · Last updated
What this tool is used for
- Estimating customer lifetime value from purchase value and frequency.
- Comparing CLV against acquisition cost to check a ratio.
- Adjusting the figure for margin rather than revenue.
- Comparing two segments on lifetime value.
- Producing a figure to justify an acquisition budget.
Frequently Asked Questions
- How is customer lifetime value calculated?
- Average order value × purchase frequency × customer lifespan, at its simplest. The refinement that matters most is multiplying by gross margin — revenue-based CLV overstates what a customer is actually worth by whatever your cost of goods is.
- How does churn relate to lifespan?
- Lifespan is 1 divided by the churn rate. A 5% monthly churn implies an average 20-month customer life, which is why a small change in churn moves CLV so much — dropping churn from 5% to 4% extends lifespan from 20 months to 25.
- What is the CLV to CAC ratio?
- Lifetime value divided by acquisition cost. The widely used benchmark is 3:1, with below 1:1 meaning you lose money on every customer and far above 3:1 often meaning you are underinvesting in growth rather than being efficient.
- Should future revenue be discounted?
- For any long lifespan, yes. Money three years out is worth less than money now, so an undiscounted CLV overstates the value of a slow-burning subscription. Discounting at the cost of capital is what makes CLV comparable to the CAC you spend today.
- Why is an average CLV often misleading?
- Because the distribution is heavily skewed — a small share of customers usually accounts for most of the value. Segmenting by cohort or by acquisition channel almost always reveals that the average describes no actual customer.
Common errors and gotchas
- Using revenue rather than margin, which overstates the value substantially.
- Assuming a lifespan rather than measuring retention, which is where most of the error lives.
- Ignoring discounting, when value arriving in five years is worth less than value today.
- Averaging across segments whose behaviour is very different.
- Treating CLV as a budget rather than a ceiling on sensible acquisition spend.