Pick the model that fits your customers
Buy again and again. Shops, restaurants, anything with repeat orders and no contract. You need average order value, how many orders a customer places in a year, and how many years they keep buying.
Pay a subscription. Software, memberships, boxes. You need average revenue per customer per month and monthly churn, the share of customers who cancel each month.
Both models give lifetime revenue first. Add a gross margin and you get lifetime value in gross profit, which is what you should compare with acquisition cost. Add a CAC and you get the LTV:CAC ratio, plus, for subscriptions, the number of months it takes to earn the CAC back.
The formulas
Repeat purchases (Shopify's basic CLV formula):
Lifetime revenue = average order value × orders per year × years
Lifetime value = lifetime revenue × gross margin
Subscriptions, assuming the same share of customers leaves every month:
Average lifetime in months = 1 ÷ monthly churn
Lifetime revenue = monthly revenue per customer ÷ monthly churn
Lifetime value = lifetime revenue × gross margin
Both models:
LTV:CAC = lifetime value ÷ CAC
CAC payback (months) = CAC ÷ (monthly revenue per customer × gross margin)
The 1 ÷ churn step is where the subscription model gets its "lifetime" from. If 4% of customers leave each month and that rate holds, the average customer stays 1 ÷ 0.04 = 25 months. Real churn is often higher in the first months and lower later, so treat the result as an estimate.
Worked examples
Repeat buyers. Shopify's example store: $50 average purchase, 3 purchases a year, customers stay 2 years. $50 × 3 × 2 = $300 lifetime revenue. With a 40% gross margin, lifetime value is $120 of gross profit. If CAC is $45, LTV:CAC = $120 ÷ $45 = 2.67:1.
Subscription. $49 a month, 3.5% monthly churn, 78% gross margin, $420 CAC.
- Average lifetime: 1 ÷ 0.035 = 28.6 months.
- Lifetime revenue: $49 ÷ 0.035 = $1,400.
- Lifetime value: $1,400 × 0.78 = $1,092 of gross profit.
- LTV:CAC = $1,092 ÷ $420 = 2.60:1.
- CAC payback: $420 ÷ ($49 × 0.78) = $420 ÷ $38.22 = 11.0 months.
| Model | Inputs | Lifetime value | LTV:CAC |
|---|---|---|---|
| Repeat | $50 × 3 a year × 2 years, 40% margin, $45 CAC | $120.00 | 2.67:1 |
| Subscription | $49 a month, 3.5% churn, 78% margin, $420 CAC | $1,092.00 | 2.60:1 |
Revenue LTV or profit LTV
Shopify's guide notes that CLV on its own shows how much a customer spends, not how much you make, and suggests multiplying by gross margin to get the profit per customer. That matters most when you compare with CAC. A revenue LTV of $300 against a $100 CAC looks like 3:1; with a 30% margin it is $90 against $100, and every customer is a loss. The calculator labels the result as lifetime revenue whenever you leave margin blank.
Getting the inputs right
- Average order value = revenue ÷ number of orders, over a full year if you can, so seasonal peaks do not skew it.
- Orders per year = orders ÷ unique customers for the same year.
- Years a customer stays is the hardest number. Use your own repeat-purchase data; if you are new, pick a short, cautious figure and revisit it.
- Monthly churn = customers who cancelled in the month ÷ customers at the start of the month.
- Gross margin should include the direct cost of serving the customer: product, delivery, payment fees, hosting or support that grows with each customer.
The model leaves out discounting future money and any growth in spend per customer. Both cut in opposite directions, and for planning a marketing budget the simple version is usually enough if the inputs are honest.
How this calculator handles your numbers
Everything is worked as exact fractions and rounded once at the end: money to two decimals, months to one decimal, the ratio to two decimals, half away from zero. Monthly churn must be above 0%, because with no churn the formula has no end. Churn and margin above 100% are refused. If you add a CAC of 0, the ratio is left out because it has no meaning.