LTV Formula: The Complete
Customer Lifetime Value Guide
Master the LTV formula with step-by-step examples, variations, and strategies to increase customer lifetime value.
The LTV Formula
For profit-based LTV, multiply by Gross Margin
Average Order Value—mean revenue per transaction.
How many times a customer buys per year on average.
How long the customer relationship lasts (in years).
Total expected revenue from one customer over time.
Quick Example
Your average order is $60, customers buy 3 times per year, and stay for 2.5 years.
LTV = $60 × 3 × 2.5 = $450
Each customer is worth $450 in revenue over their lifetime with your store.
Calculate LTV Automatically
StoreRadar calculates Customer Lifetime Value for every customer segment in real-time—no spreadsheets or manual analysis.
LTV Formula Variations
Different approaches to calculating customer lifetime value
The most common formula. Uses revenue, not profit.
More accurate for acquisition decisions. Account for COGS.
Easy to calculate but doesn't account for customer age mix.
Requires time and tracking infrastructure. Gold standard.
ARPU = Average Revenue Per User per period.
Requires data science capabilities and historical data.
Worked Examples
Step-by-step LTV calculations
Basic Ecommerce LTV
Your store's average order is $82, customers buy 2.5 times per year on average, and your typical customer relationship lasts 2.8 years.
- 1 AOV = $82
- 2 Purchase Frequency = 2.5 times/year
- 3 Customer Lifespan = 2.8 years
- 4 LTV = $82 × 2.5 × 2.8 = $574
Your average customer is worth $574 in revenue over their lifetime.
If your CAC is $100, your LTV:CAC is 5.7:1—excellent unit economics for scaling.
Gross Profit LTV
Same metrics, but now factor in your 42% gross margin.
- 1 Revenue LTV = $574 (from above)
- 2 Gross Margin = 42%
- 3 Gross Profit LTV = $574 × 0.42
- 4 Gross Profit LTV = $241
Each customer contributes $241 in gross profit over their lifetime.
This is more useful for acquisition decisions. If CAC is $100, you profit $141 per customer before operating expenses.
LTV from Churn Rate
Your subscription business has $39/month ARPU and 8% monthly churn.
- 1 ARPU = $39/month
- 2 Monthly Churn = 8% = 0.08
- 3 Customer Lifespan = 1 ÷ 0.08 = 12.5 months
- 4 LTV = $39 × 12.5 = $487.50
Average subscriber LTV is $487.50.
Reducing churn from 8% to 6% would increase lifespan to 16.7 months and LTV to $651—a 34% improvement.
LTV:CAC Ratio Analysis
Your LTV is $400, and you acquire customers through two channels with different CACs.
- 1 Channel A: CAC $80 → LTV:CAC = $400/$80 = 5:1
- 2 Channel B: CAC $150 → LTV:CAC = $400/$150 = 2.67:1
- 3 Blended CAC: $110 → LTV:CAC = $400/$110 = 3.6:1
Channel A has excellent 5:1 ratio; Channel B is marginal at 2.67:1.
Shift more budget to Channel A. Channel B may only be viable if it brings higher-LTV customers—segment and analyze.
The LTV:CAC Ratio
The most important metric for sustainable growth
Unprofitable
You're paying more to acquire customers than they're worth. Urgent action needed.
Marginal
Profitable but tight. Operating costs may eat into the margin. Optimize both sides.
Healthy
Strong unit economics. You can scale acquisition confidently. Above 5:1 may mean under-spending on growth.
Why 3:1 is the benchmark
At 3:1, one-third of LTV goes to acquisition, leaving room for operating costs (~33%) and profit (~33%). This is a rough heuristic—your actual needs depend on business model and margins.
LTV by Customer Segment
Not all customers are worth the same—segment and target accordingly
High-Value Customers
3-5x averageTop 20% by spending
VIP programs, early access, personalized service
Repeat Buyers
1.5-2x average2+ purchases, not high-value
Loyalty programs, subscription offers, bundles
One-Time Buyers
Below averageSingle purchase only
Re-engagement campaigns, second purchase incentives
At-Risk Customers
DecliningPreviously active, now dormant
Win-back campaigns, feedback surveys
How to Increase LTV
Five levers to improve customer lifetime value
| Lever | Tactics | Impact on LTV |
|---|---|---|
| Increase AOV | Upsells, cross-sells, bundles, free shipping thresholds | Direct multiplier on LTV |
| Increase Purchase Frequency | Email marketing, subscriptions, loyalty programs, retargeting | Direct multiplier on LTV |
| Extend Customer Lifespan | Improve product quality, customer service, community building | Direct multiplier on LTV |
| Improve Margins | Supplier negotiation, reduce COGS, optimize shipping | Increases profit-based LTV |
| Reduce Churn | Proactive support, loyalty rewards, subscription flexibility | Extends lifespan significantly |
Common LTV Mistakes
Errors that lead to wrong strategic decisions
Using LTV Too Early
New stores don't have enough data to calculate accurate LTV. A 6-month-old business can't know true lifespan.
Start with industry benchmarks. Calculate LTV after 12-18 months of data. Use cohort analysis to improve accuracy over time.
Ignoring Customer Segments
One average LTV hides that your best customers are worth 10x your worst. Blended LTV leads to poor decisions.
Segment LTV by acquisition channel, product category, and customer behavior. Target your best segments.
Not Accounting for Costs
Revenue LTV ignores that you spend money on COGS, fulfillment, and servicing customers.
Calculate profit-based LTV by multiplying by gross margin. Consider fully-loaded LTV for strategic decisions.
Static LTV Calculations
LTV changes as your business evolves. Customer behavior, product mix, and market conditions shift.
Recalculate LTV quarterly. Use rolling averages and track LTV trends over time.
Overly Optimistic Lifespan
Assuming customers will stay forever or using best-case scenarios inflates LTV projections.
Be conservative with lifespan estimates. Use actual churn data when available. Better to underestimate LTV than overspend on CAC.
Ignoring Time Value of Money
Revenue received in 3 years is worth less than revenue today. Simple LTV doesn't account for this.
For sophisticated analysis, discount future revenue using NPV. This matters more for long-lifespan businesses.
How to Track LTV in WooCommerce
Three ways to monitor Customer Lifetime Value for your WooCommerce store
Option 1: Spreadsheets
Export customer and order data to calculate LTV manually. Requires regular exports and complex formulas to track over time.
- Full control
- No additional cost
- Time-consuming
- Quickly outdated
- Complex calculations
Option 2: Google Analytics
GA4 offers some lifetime value reports, but requires proper setup and has limitations with historical data and customer identification.
- Free to use
- Some automation
- Limited accuracy
- Cookie-based tracking
- Complex setup
Option 3: StoreRadar
StoreRadar calculates Customer Lifetime Value automatically for every customer and segment, updated in real-time as new orders come in.
- Automatic calculation
- Segment-level LTV
- Real-time updates
- Cohort analysis
- Monthly subscription
Related Ecommerce Formulas
Metrics that work alongside LTV
| Formula | Calculation | Relationship to LTV |
|---|---|---|
| Customer Acquisition Cost (CAC) | Total Acquisition Spend ÷ New Customers | LTV:CAC ratio determines acquisition efficiency |
| Churn Rate | Lost Customers ÷ Starting Customers × 100 | Churn determines customer lifespan (1 ÷ Churn) |
| Average Order Value (AOV) | Total Revenue ÷ Number of Orders | Direct component of LTV formula |
| Purchase Frequency | Total Orders ÷ Unique Customers | Direct component of LTV formula |
| Gross Margin | (Revenue - COGS) ÷ Revenue × 100 | Converts revenue LTV to profit LTV |
Explore more formulas and calculators
Frequently Asked Questions
Common questions about Customer Lifetime Value
The basic LTV formula is: LTV = Average Order Value × Purchase Frequency × Customer Lifespan. For example, if AOV is $75, customers buy 3 times per year, and stay for 2.5 years, LTV = $75 × 3 × 2.5 = $562.50.
A healthy LTV:CAC ratio is 3:1 or higher—meaning you earn $3 in lifetime value for every $1 spent acquiring a customer. Below 1:1 means you're losing money on each customer. Above 5:1 might mean you're underinvesting in growth.
Customer lifespan = 1 ÷ Churn Rate. If 20% of customers stop buying each year (annual churn), lifespan = 1 ÷ 0.20 = 5 years. For new stores, estimate conservatively or use industry benchmarks until you have sufficient data.
Both are valid. Revenue-based LTV (also called CLV) shows total customer value. Profit-based LTV multiplies by gross margin for actual profit contribution. Profit-based is more accurate for decision-making but requires knowing your margins.
For subscriptions: LTV = Monthly Revenue × Average Customer Lifespan (in months). If MRR is $29 and average customer stays 14 months, LTV = $29 × 14 = $406. For gross profit LTV, multiply by your margin.
Recalculate LTV quarterly or when you make significant changes to pricing, products, or customer experience. LTV changes over time as your customer mix, retention, and purchase behavior evolve.
Calculate LTV Automatically
StoreRadar calculates Customer Lifetime Value for every customer and segment in real-time, so you can make data-driven acquisition and retention decisions.
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