Customer Lifetime Value (LTV) Calculator
The total profit a customer is worth over their lifetime.
Your numbers
Lifetime value (profit)
₹36,000
Lifetime revenue
₹60,000
Max CAC (3:1 LTV)
₹12,000
Per-year value
₹12,000
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Definition
Customer lifetime value (LTV or CLV) is the total gross profit you expect from a customer across the whole relationship, not just the first sale. Average order value multiplied by purchase frequency, by the length of the relationship, by gross margin. It is the number that tells you what you can afford to spend to win someone.
The formula
LTV = Average order value × Orders per year × Years retained × Gross margin
Use gross profit, never revenue. An LTV built on revenue overstates what a customer is worth by exactly your cost of goods, and it is the most common reason businesses convince themselves an unprofitable acquisition cost is fine.
A worked example
A Delhi dental clinic
- 1Average treatment value: ₹6,000. Patients return about 1.5 times a year.
- 2Average patient stays with the clinic roughly 4 years.
- 3Revenue over the relationship: 6,000 × 1.5 × 4 = ₹36,000.
- 4Gross margin after materials, lab work and clinician time is about 55%.
LTV is ₹19,800 of gross profit. At a 1:3 target ratio the clinic can comfortably spend up to ₹6,600 to acquire a patient — many times what it had been willing to pay per lead.
How to move the number
Retention beats acquisition, arithmetically
Extending average relationship length from three years to four raises LTV by a third and costs a fraction of what winning that many new customers would. Yet almost all marketing budget goes to the top of the funnel.
Increase frequency, not just basket size
Reminders, service plans, subscriptions and simple WhatsApp follow-up move purchase frequency, and frequency multiplies through the whole formula. A recall message before a service is due is the cheapest LTV lever most local businesses never use.
Segment before you average
A single blended LTV hides the fact that your best 20% of customers may be worth ten times the rest. Knowing which acquisition channels produce that segment is worth more than the average ever is.
Feed LTV back into bidding
Once you know LTV by segment you can bid differently for the traffic that produces high-value customers instead of optimising every campaign toward the cheapest possible lead.
Where people get this wrong
- Calculating LTV on revenue rather than gross profit, which overstates it by the whole cost of goods.
- Using a retention assumption nobody has checked against actual repeat-purchase data.
- Applying one blended LTV across very different customer segments and then setting a single CAC ceiling from it.
- Treating LTV as fixed. It is an output of how well you serve people, and it moves when service does.
Customer Lifetime Value (LTV) Calculator — questions we get
How do I calculate LTV if my business is new?
Use a conservative first-year value instead — average order value times expected orders in twelve months times gross margin — and treat anything beyond that as upside. A defensible one-year number is far more useful for setting budgets than a five-year projection built on guesses.
Should LTV use revenue or profit?
Gross profit, always. The point of LTV is to work out what you can afford to spend acquiring a customer, and you can only spend the margin, not the turnover.
What LTV to CAC ratio should I aim for?
Around 3:1 is the accepted target. Below 1:1 growth destroys value. Well above 5:1 usually signals under-investment rather than excellence — there is profitable demand you are not buying.
How does LTV change what I bid?
It sets the ceiling. If LTV is ₹20,000 in gross profit and you want a 3:1 ratio, you can spend ₹6,600 per customer. Divide by your close rate and you have the cost per lead you can genuinely afford — which is often much higher than businesses assume.
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