Calculate customer lifetime value to understand how much each customer is worth. Optimize acquisition spend with LTV:CAC ratio analysis and make data-driven growth decisions.
Average amount a customer spends per order
How often does a typical customer make a purchase?
How long does a customer typically stay active?
Optional: Your profit margin after COGS and variable costs
Optional: Average cost to acquire one customer
Based on your $360.00 LTV, these are the maximum amounts you can spend per customer acquisition to achieve each ratio.
What this means: Each customer generates $360.00 in profit over their 36-month lifetime, with an average of 12.0 purchases at $75.00 per order. Your LTV:CAC ratio of 7.20:1 means you earn $7.20 for every $1 spent on acquisition. This is excellent and indicates a healthy, scalable business model.
Multiply purchase frequency by customer lifespan. If customers buy 4 times per year and stay for 3 years, that's 12 total purchases over their lifetime.
Multiply total purchases by average order value. 12 purchases × $75 AOV = $900 gross lifetime value. This is total revenue from the customer.
Multiply gross LTV by your profit margin to get net LTV. $900 × 40% margin = $360 net LTV. This is the actual profit you keep after costs.
Divide net LTV by CAC. $360 LTV ÷ $50 CAC = 7.2:1 ratio. Generally, 3:1 or higher is considered healthy. Below 1:1 means you're losing money.
LTV tells you exactly how much you can afford to spend acquiring customers. With $360 LTV, you could theoretically spend up to $120 per customer (3:1 ratio) and maintain healthy margins.
Know when you can pour fuel on the fire. High LTV:CAC ratios (3:1+) mean you can aggressively scale Meta and Google Ads. Low ratios signal focus on retention before scaling acquisition.
Small increases in customer lifetime create massive LTV gains. Extending lifespan from 24 to 30 months (25% increase) can boost LTV by thousands of dollars at scale.
Not all customers are equal. Calculate LTV by cohort, channel, or product to identify your most valuable segments. Spend more acquiring high-LTV customers.
You're losing money on every customer. Immediately improve retention, increase prices, reduce acquisition costs, or reconsider your business model.
You're profitable but there's room for improvement. Focus on increasing purchase frequency, extending customer lifetime, or optimizing acquisition channels.
Industry standard for sustainable growth. You have healthy unit economics and can confidently scale acquisition. Continue optimizing retention.
Outstanding LTV:CAC ratio. You're leaving money on the table if you're not scaling acquisition. Invest heavily in paid channels and expand into new markets.
Use LTV to determine your maximum profitable CPA. If your LTV is $360 and you want a 3:1 ratio, you can spend up to $120 per customer.
Calculate LTV by acquisition channel. If Instagram customers have $500 LTV but Google customers have $200 LTV, shift budget to Instagram even if the CAC is higher.
Model how price increases affect LTV. A 10% price increase with minimal churn can boost LTV by hundreds of dollars, allowing you to outbid competitors for customers.
Calculate the value of extending customer lifespan. If a loyalty program costs $10/customer but increases lifespan from 24 to 30 months, the LTV gain likely justifies the investment.
LTV:CAC ratio is a critical metric for investors. Ratios above 3:1 demonstrate unit economics work and the business can scale profitably.
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