Customer Lifetime Value Calculator
What a customer is worth over the whole relationship, and what that allows you to spend winning one.
Lifetime value is the profit a customer produces from the first purchase to the last. It is the ceiling on what a business can sensibly spend to acquire one, and it is usually much larger than the first order suggests.
Enter what a customer spends, how often they buy, how long they stay and what it costs to serve them, and this calculator gives the lifetime value per customer and the acquisition budget it justifies.
At a glance
- What you enter
- Average order value, Orders per year, Years a customer stays, Gross margin, Annual retention rate, Annual discount rate, Target value-to-acquisition ratio
- What you get
- Lifetime value, Revenue over the relationship, Justified acquisition cost, Value per customer per year, Lifetime value discounted
- Formula shown
- Yes - every step, right below your results.
- Cost and privacy
- Free, no account needed, and nothing you type is stored.
See worked examples ↓ Read the FAQ ↓ Share this calculator ↓
Results are estimates for general information only - always verify with a professional or official source before acting on them.
How to use the Customer Lifetime Value Calculator
- 1 Enter Average order value
- 2 Enter Orders per year
- 3 Enter Years a customer stays (years)
- 4 Enter Gross margin
- 5 Enter Annual retention rate - The share of customers who come back in a year, used for the churn comparison.
- 6 Enter Annual discount rate - What future money is worth less by, per year.
- 7 Enter Target value-to-acquisition ratio
- 8 Press Calculate. You get Lifetime value, Revenue over the relationship, Justified acquisition cost, Value per customer per year, Lifetime value discounted, and every intermediate step stays visible under “How is this calculated?”
- 9 Change one number at a time to see what moves the result - that is usually the most useful thing a calculator can tell you.
Worked examples
Real numbers run through this calculator. Open any example to load it into the form above and change it.
A $120 order three times a year for four years
A repeat customer base with a 70% annual retention rate.
You enter
- Average order value
- $120.00
- Orders per year
- 3
- Years a customer stays
- 4 years
- Gross margin
- 55%
- Annual retention rate
- 70%
- Annual discount rate
- 10%
- Target value-to-acquisition ratio
- 3
You get
- Lifetime value
- $792.00
- Revenue over the relationship
- $1,440.00
- Justified acquisition cost
- $264.00
- Value per customer per year
- $198.00
- Lifetime value discounted
- $627.63
A customer spending $120 three times a year produces $360 of revenue a year and $1,440 over four years. At a 55% margin the lifetime value is $792, and each extra year of retention is worth $198. A 3 to 1 target justifies spending $264 to win a customer, and the discounted value at 10% is $627.63. Retention of 70% implies a 30% churn rate, an average life of 3.33 years and $7.92 of value for each point of retention.
A $65 order six times a year for eighteen months
A shorter relationship on a cheaper item, with a higher margin and a faster churn rate.
You enter
- Average order value
- $65.00
- Orders per year
- 6
- Years a customer stays
- 1.50 years
- Gross margin
- 72%
- Annual retention rate
- 45%
- Annual discount rate
- 15%
- Target value-to-acquisition ratio
- 2.50
You get
- Lifetime value
- $421.20
- Revenue over the relationship
- $585.00
- Justified acquisition cost
- $168.48
- Value per customer per year
- $280.80
- Lifetime value discounted
- $354.04
The customer spends $390 a year and $585 over the eighteen months. At a 72% margin the lifetime value is $421.20, with each additional year worth $280.80. A 2.5 to 1 target justifies an acquisition cost of up to $168.48, and the discounted value at 15% is $354.04. Retention of 45% means 55% churn, an average life of 1.82 years rather than the 1.5 entered, and $4.21 of value for each point of retention.
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Frequently asked questions
What should I enter as the average order value?
The average amount a customer spends in one transaction, and the orders per year should describe the same customer. Mixing a single order value with annual spending overstates the lifetime value, sometimes by several times.
If your data is messy, work from a year of revenue divided by the number of customers and then by the orders they placed. An annual revenue figure on its own is not an order value and should not be typed into that field.
Should I include the cost of serving the customer?
Yes, and the gross margin field is where it goes. The margin removes the direct costs of the goods or service sold, so the lifetime value is gross profit rather than revenue. A customer producing $1,440 of revenue at a 55% margin is worth $792 of gross profit.
What stays out is everything below the gross margin line: support staff, hosting, returns processing and overhead. If those are heavy, the real value of a customer is lower than the figure here, and the acquisition budget it justifies is lower too.
How does the discount rate change the answer?
It reduces the value of money that arrives in future years, on the principle that a dollar next year is worth less than a dollar today. The undiscounted lifetime value is $792, and at a 10% discount rate across four years it is $627.63.
The discount rate matters more the longer customers stay and the higher the rate. For a business with a two year relationship the difference is small; for one with a ten year relationship it can be a third of the value, which changes what it is sensible to spend on acquisition.
Why is the retention rate a separate input from the number of years?
Because they answer different questions. The years field is the relationship length you expect, and it drives the lifetime value. The retention rate is the share of customers who come back in a year, and it drives the churn comparison and the implied customer life.
A 70% retention rate implies an average relationship of 3.33 years, which is close to the four years entered, and one percentage point of retention is worth $7.92 a customer. Where the two disagree sharply, the retention figure is usually the more reliable, because it comes from customers rather than from a plan.