What LTV measures

Customer Lifetime Value = the gross profit you make from one customer over the time they stay with you.

Formula used here (the classic e-commerce/subscription version):

LTV = Average Order Value × Purchase Frequency × Customer Lifespan × Gross Margin

So a coffee subscription business with $30 monthly orders, 12 purchases/year, 2-year average lifespan, 60% gross margin:

LTV = $30 × 12 × 2 × 0.60 = $432

That’s the gross profit per customer. Marketing and overhead come out separately.

Why gross margin matters here

If your AOV is $100 but your gross margin is only 20%, you’re keeping $20 per order, not $100. Multiply that thin margin by even high purchase frequency and the LTV is much lower than gross revenue would suggest.

This is why selling cheap items at thin margins requires very high purchase frequency to be sustainable — and why subscription businesses fight so hard to retain customers (extending lifespan even by a few months can dramatically raise LTV).

Customer lifespan — the trickiest input

For new businesses, you don’t know lifespan yet. Estimates: - DTC e-commerce: 1-3 years for repeat customers (single-purchase customers don’t count) - B2C subscriptions: median ~12-24 months - B2C SaaS: 24-48 months - B2B SaaS, SMB: 30-48 months - B2B SaaS, enterprise: 60-120 months - Mobile apps: 6-18 months for paying users

You can also use churn rate: if 5% of customers leave each month, average lifespan = 1 ÷ 0.05 = 20 months.

Frequently asked questions

faq: - q: “Should I use revenue or gross profit for LTV?” a: “Gross profit. LTV is a profitability metric — it should reflect what’s actually left after cost of goods. Revenue-LTV (skipping the margin step) gives misleadingly high numbers and makes LTV:CAC ratios look better than they are.” - q: “What about expanding LTV (upsells, referrals)?” a: “More sophisticated LTV models include net revenue retention (existing customers spending more over time) and viral coefficient (customers bringing in new customers, reducing effective CAC). For a starter calculation, the simple AOV × frequency × lifespan × margin formula is fine.” - q: “How does LTV change with discounting?” a: “Discounts reduce AOV (lowering LTV directly) but can extend lifespan (if discounts retain people who would otherwise churn). The net effect depends on price elasticity. Most businesses find heavy discounting hurts LTV more than it helps retention.”

Related calculators

CAC calculator — Customer Acquisition Cost
LTV:CAC ratio — unit economics health
Net profit margin — bottom-line profitability
Compound interest — for retention/lifespan modeling

Sources

Why simple LTV often overestimates

The formula here uses average lifespan, which assumes uniform churn. In reality: - Cohort decay isn’t linear — most cohorts lose 30-50% of customers in year 1, then stabilize - Survivor bias — your “average customer lifespan” is dragged up by long-tail loyal customers; the median is much shorter - Discount rate — $100 of profit in year 5 isn’t worth $100 today; for long-lifespan businesses, apply a discount rate

For more accurate LTV, use cohort-based revenue retention (NRR) or Bayesian models that account for lifespan distribution.

Quick benchmarks

What’s a typical LTV by industry?

DTC e-commerce (low-frequency): $50-200
DTC e-commerce (subscription/repeat): $200-1,000
Mobile games (paying users): $50-300
B2C SaaS / streaming: $200-1,000
B2B SaaS, SMB: $5,000-50,000
B2B SaaS, enterprise: $100,000+

Last verified: April 2026.

LTV Calculator (Customer Lifetime Value)