Customer lifetime value calculator
This calculator needs JavaScript. The formula and the worked example on this page show how it works.
Result
Enter a value above 0 in each field.
Formula
Lifetime revenue = average revenue per sale or case x sales or cases per customer
Lifetime value (gross profit) = lifetime revenue x gross margin
How do you calculate customer lifetime value?
Customer lifetime value (LTVLTV (lifetime value)The total gross profit a business expects from one customer over the whole relationship. Glossary, also called CLV) is the gross profit you expect from one customer across every sale or case you handle for them. The customer lifetime value formula has two steps.
- Lifetime revenue = average revenue per sale or case x sales or cases per customer over the relationship.
- Lifetime value (gross profit) = lifetime revenue x gross margin.
Gross margin is the share of revenue left after the direct cost of delivering the sale or case: materials, labor, case costs and similar. Enter it as a percentage.
Example (made-up numbers)
Average revenue per sale of $100 and 10 sales per customer: $100 x 10 = $1,000.00 lifetime revenue.
A 50% gross margin: $1,000 x 0.50 = $500.00 lifetime value (gross profit).
How to use the LTV calculator
- Enter the average revenue per sale or case. Use your own records, over a period long enough to include typical customers.
- Enter your gross margin as a percentage, so a margin of one half is 50.
- Enter how many sales or cases a typical customer brings over the whole relationship. If most customers buy once, enter 1.
- Read the lifetime revenue and the lifetime value as you type. Use Copy result to paste them into a report, or Clear inputs to start again.
The calculator leaves out referral value. A customer who refers others can be worth more than this result, but unless you track referrals by customer, any figure you add would be a guess. Keep it out of the number you use to set budgets.
How buyers use LTV to set what they pay per lead
Lifetime value is the ceiling on what you can spend to win a customer and still make money. To turn it into a maximum price per lead, multiply the value of a customer by your close rateClose rateThe share of leads worked that become closed deals, such as sold jobs or signed cases. Glossary (the share of leads that become customers). The result is what one lead is worth to you before you pay for it.
The break-even cost per lead calculator does that step, and it can subtract a profit target and account for returned leads. The lead value calculator shows the value of a single lead from revenue and close rate.
Decide whether to use the first sale or the full lifetime value. Using lifetime value lets you pay more per lead, but the money from later sales arrives later, and some customers never come back. A cautious approach is to set the price from first-sale profit and count repeat business as extra.
Common LTV mistakes
- Using revenue instead of gross profit. Lifetime revenue overstates what a customer is worth. Pay per lead out of profit, not revenue.
- Assuming every customer buys again. Use the average number of sales per customer across all customers, including those who bought once.
- Counting sales from a period that has not happened yet. If your records cover two years, do not assume a ten-year relationship.
- Adding referral value you cannot measure. Leave it out unless you track it.
- Mixing new and existing customers. Customers who came from a referral or a long-standing account may behave differently from customers who came from purchased leads.
Embed this calculator
You can add this LTV calculator to your own site. Copy the code below and paste it into your page. It loads the calculator in a frame and includes a credit link to this page.
Frequently asked questions
How do you calculate customer lifetime value?
Multiply the average revenue per sale or case by the number of sales or cases per customer, then multiply by your gross margin. The result is lifetime gross profit per customer.
What is the difference between LTV and CLV?
None. LTV (lifetime value) and CLV (customer lifetime value) are two names for the same figure.
Should LTV use revenue or profit?
Use gross profit when you set budgets or prices per lead. Lifetime revenue is useful for forecasting, but it ignores the cost of delivering the work.
How does LTV relate to customer acquisition cost?
Customer acquisition cost is what you spend to win a customer. It needs to stay below lifetime value for the customer to be profitable. The customer acquisition cost calculator works it out.
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