Customer lifetime value calculator

1. Pick what to work out. Lifetime value gives what a customer is worth. Max CAC gives the most you can spend to win one at the LTV to CAC ratio you choose.
2. Enter three numbers from your store.
   • Average order value: revenue divided by the number of orders.
   • Orders per customer each year: orders in a year divided by the customers who placed them.
   • Years a customer keeps buying: your best estimate of how long a typical customer stays. If you are not sure, start with 1 to 3 years and see how much the answer moves.
3. Add your gross margin and CAC to see lifetime gross profit, the LTV to CAC ratio and how many orders it takes to earn back what the customer cost.

LTV = average order value × orders a year × years as a customer

A clothing store's customers spend $60 an order, order 2.5 times a year and keep buying for 2 years: $60 × 2.5 × 2 = $300 of revenue, from 5 orders.

Lifetime gross profit

Gross profit LTV = LTV × gross margin

At a 50% gross margin, that customer leaves $300 × 0.50 = $150 after product costs. This is the number to compare with what you spend to win them, because revenue also has to pay for the products.

LTV to CAC ratio

LTV to CAC = gross profit LTV ÷ customer acquisition cost

If ads cost $45 per new customer: $150 ÷ $45 = 3.33 : 1. Each first order makes $60 × 0.50 = $30 of gross profit, so the customer pays back their $45 cost by the second order.

Max CAC

Max CAC = gross profit LTV ÷ target ratio

To keep a 3 : 1 ratio on $150 of lifetime gross profit, spend at most $150 ÷ 3 = $50 to win a customer.

• Below 1 : 1: each customer costs more to win than they bring back in gross profit. Growth loses money.
• 1 : 1 to 3 : 1: customers pay for themselves, with little left for overheads and profit.
• 3 : 1 or higher: the usual rule of thumb for a healthy business. A much higher ratio can also mean you are spending too little and growing slower than you could.

The ratio is only as good as its inputs. Years as a customer is an estimate, so a cautious number is safer than a hopeful one. A new store can work out LTV over the first 6 or 12 months instead, and raise it as repeat orders come in.

Most ad platforms report the value of the first order, not the customer's lifetime. That makes it easy to switch off ads that lose a little on the first order but pay off on the repeat orders that follow.

• Know your first-order break-even. Order value × gross margin is the most a first order can pay for. Check it with the CPA calculator.
• Decide how much of the lifetime you will fund up front. Spending up to the max CAC above only works if you have the cash to wait for repeat orders.
• Raise LTV as well as cutting CAC. Repeat-purchase emails, bundles and a reason to come back (refills, new collections) lift orders a year, which lifts every number here.

Ad Autopilot works out your break-even and target CPA from your margin and order value and runs your Meta and Google Ads campaigns against them.