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.
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
- Shopify — Customer Lifetime Value Guide
- Harvard Business Review — Cost of Customer Acquisition
- Investopedia — Customer Lifetime Value
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 by acquisition channel — why blending it hides the real picture
Customers acquired through different channels frequently have meaningfully different lifetime values, even within the same business — a customer who found you through organic search or a referral typically has higher intent and stronger product-market fit at the point of acquisition than one acquired through a cold paid ad, which shows up downstream as a longer lifespan and higher LTV. Blending LTV across all acquisition channels into one number obscures this, and can lead to overpaying for acquisition on channels that look fine on a blended-average basis but are actually below the profitable threshold once isolated. Calculating LTV per channel, not just for the business as a whole, is what actually informs where to increase or cut acquisition spend.
Using LTV to set a maximum CAC, not just report a number
LTV is most useful as an input to a decision, not a standalone report. Once you know LTV, the practical next step is dividing by your target LTV:CAC ratio (commonly 3:1 as a healthy benchmark, though this varies by industry and growth stage) to get a maximum sustainable customer acquisition cost. A $432 LTV coffee subscription business targeting a 3:1 ratio should be capping blended CAC around $144 — bidding above that on ad platforms, even if it's technically still profitable at a lower ratio, erodes the margin buffer that protects against retention shocks, seasonal demand shifts, or a competitor's price war.