Customer Lifetime Value (LTV) Calculator

Master Customer Lifetime Value to Scale Profitably

Most e-commerce brands focus obsessively on acquiring new customers while ignoring the gold mine they already have: existing customers. Understanding your Customer Lifetime Value (LTV) is the difference between playing a short-term game and building a sustainable, scalable business.

What is Customer Lifetime Value (LTV)?

Customer Lifetime Value is the total profit you earn from a single customer over their entire relationship with your brand. It's not just about the first purchase—it's about all the purchases they make over months or years.

The formula is simple but powerful:

LTV = Profit Margin per Order × Purchase Frequency × Customer Lifespan

If your average customer spends $100 per order with a $30 profit margin, buys 3 times per year, and stays with you for 2 years—your LTV is $180 ($30 × 3 × 2).

Why LTV Changes Everything for Your Ad Strategy

Here's the harsh truth: most of your competitors are only optimizing for first-purchase profitability. They're leaving money on the table—and you can exploit that.

When you understand LTV, you can afford to spend more on customer acquisition than your competitors because you're playing the long game. If your LTV is $180 and your competitor's is only looking at a $30 first-purchase profit, you can outbid them 6:1 and still be more profitable over time.

This is exactly how brands like Dollar Shave Club, Glossier, and other DTC giants scaled so aggressively. They knew their numbers.

The LTV:CAC Ratio – Your North Star Metric

Your LTV:CAC ratio tells you if your business model is sustainable. Here's the breakdown:

• Below 1:1 – You're losing money on every customer. Fix this immediately.
• 1:1 to 3:1 – You're breaking even or barely profitable. Risky territory for scaling.
• 3:1 to 5:1 – Healthy and sustainable. You're ready to scale acquisition.
• Above 5:1 – Excellent unit economics. You should be scaling aggressively and could afford to increase CAC.

The sweet spot for most profitable e-commerce brands is a 3:1 ratio. For every dollar you spend acquiring a customer, you should earn at least three dollars in lifetime profit.

Acquisition vs. Retention: The Real Arbitrage

Here's a stat that should change your entire marketing strategy: Increasing customer retention by just 5% can increase profits by 25-95% (Harvard Business Review).

Why? Because acquiring a new customer costs 5-25x more than retaining an existing one. Yet most brands dump 90% of their budget into acquisition and ignore retention entirely.

Look at the "Impact of Purchase Frequency" chart above. See how dramatically your profit increases when you get a customer to buy just one more time per year? That's the power of retention.

How to Increase Your LTV (Practical Tactics)

You have three levers to pull to increase LTV:

1. Increase Profit Margin per Order: Use upsells, bundles, and price optimization. See our Profit Margin Calculator to optimize this.
2. Increase Purchase Frequency: Implement email flows (post-purchase, win-back campaigns), loyalty programs, subscriptions, SMS marketing, and retargeting ads. This is the highest-leverage play.
3. Increase Customer Lifespan: Improve product quality, customer service, and brand experience. Build a community around your brand so customers stay longer.

Most brands focus only on #1. Smart brands optimize all three.

Using LTV to Set Your Maximum CAC Target

Once you know your LTV, setting your maximum Customer Acquisition Cost is simple:

Max CAC = LTV / 3

This ensures a healthy 3:1 ratio. If your LTV is $180, you can spend up to $60 acquiring a customer and still maintain strong unit economics.

Now when you're running Meta Ads or Google Ads, you have a clear target. If your current CAC is $80, you know you need to either improve your ad performance or increase your LTV through retention strategies.