Estimate how much gross profit an average customer generates over their entire relationship with your business, and compare it to acquisition cost.
Customer lifetime value (LTV or CLV) estimates the total gross profit you earn from a single customer across their entire relationship with your business. It is the counterweight to acquisition cost: knowing LTV tells you how much you can afford to spend winning each customer.
This calculator uses LTV = Average Monthly Revenue × Gross Margin% × Average Lifespan (months). A customer paying $100/month at an 80% gross margin who stays 24 months is worth $100 × 0.80 × 24 = $1,920 in lifetime gross profit. Using gross margin rather than revenue gives a far more honest number, since it excludes the cost of serving the customer.
Revenue-only LTV overstates value because it ignores delivery costs. A business with thin margins keeps far less of each dollar. Always apply your gross margin so the LTV reflects actual profit available to cover acquisition, overhead, and net income.
Tip: If you know your monthly churn rate instead of lifespan, average customer lifespan equals 1 ÷ monthly churn rate. A 4% monthly churn implies an average lifespan of about 25 months.
Once you know LTV, the LTV:CAC ratio tells you whether growth is sustainable. The classic target is 3:1. You can also work backward: if you want a 3:1 ratio and LTV is $1,920, your maximum CAC is about $640. Improving retention is usually the highest-leverage way to raise LTV, because longer lifespans compound directly into the formula.