LTV calculation: customer lifetime value formula and calculator

Customer lifetime value calculator

Enter order value, purchase frequency, lifespan and contribution margin. The calculator shows LTV on revenue and on contribution margin, plus the most you should spend to acquire one customer. The starting values fit an online store with repeat buyers.

LTV formula with a worked example

The simple formula multiplies four numbers you can pull from your store backend:

Calculate on contribution margin. Many LTV calculators stop at revenue. $600 looks like plenty of room for ad spend, but you only earn $240 of it. Plan your budget on the revenue figure and you pay for customers who never earn back their cost.

Contribution margin means revenue minus every cost that comes with an order: product, shipping, payment fees and returns. Pull those costs from your store and accounting data, then divide what is left by revenue.

Three ways to calculate LTV

Which method fits depends on your data. With the starting values, all three land close together.

Annual contribution margin in the example is $80 × 2.5 × 40% = $80. If your store loses a third of its customers every year, the average customer stays three years. The NPV method accounts for the fact that a dollar in three years is worth less than a dollar today: $74.07 + $68.59 + $63.51 = $206. Use it when relationships run long or capital is expensive.

SaaS guides calculate LTV from monthly revenue per account, gross margin and monthly churn. Online stores have no subscriptions to cancel. Customers stop ordering, so frequency and lifespan from your order history replace the churn rate.

LTV from cohorts in your store backend

Store-wide averages mix loyal regulars with one-time buyers. Your LTV gets sharper when you group customers by the month of their first order.

1. 01

   Build the cohort

   Take every customer who placed a first order in one month, for example January 2025.

2. 02

   Track revenue

   Add up the revenue of those customers after returns at 3, 6, 12 and 24 months.

3. 03

   Divide per customer

   Divide each total by the number of customers in the cohort.

4. 04

   Apply your margin

   Multiply by your contribution margin ratio. That is your LTV at 3, 6, 12 and 24 months.

Compare the curves of several cohorts. If the 12-month value rises for younger cohorts, your retention work is paying off. If it falls, your ads are bringing in customers who come back less often.

Shopify, BigCommerce and most other platforms export orders with customer ID and date. A pivot table with first-order month in the rows and months since first purchase in the columns is enough to start. Filter out canceled and refunded orders first.

How much a new customer may cost

LTV on contribution margin is the ceiling for your acquisition cost. A common rule of thumb is a 3 to 1 ratio: a customer should bring three times the contribution margin their acquisition cost. The rest covers fixed costs and profit. The LTV CAC calculator adds payback time to that check.

In the example you can spend up to $80 per new customer. The first order only brings $80 × 40% = $32 in contribution margin, so you front $48 and recover it through later orders. At 2.5 orders a year, each customer brings $6.67 a month, and the $80 is back after 12 months.

What a new customer costs you today is on the CAC cost page. What $80 in acquisition cost means for the first order shows up in the ROAS formula: an $80 order bought with $80 of ad spend is a ROAS of 1.0 on revenue you keep.

Using LTV in Google Ads

According to Google Ads Help, the customer acquisition goal lets you bid higher for new customers than for returning ones. In "new customer value" mode, Google adds an extra value to a first purchase. In "new customer only" mode, your campaign bids for new customers exclusively.

Derive the extra value from your LTV: the contribution margin of the follow-up orders. In the example, 6.5 follow-up orders bring $208 in contribution margin. Set the value with care. Hand Google the full amount and the bidding chases customers whose repeat orders arrive three years from now.

Harucon connects new customer acquisition through Google Ads with repeat purchases through email and WhatsApp. Both count in the store backend, where we measure our results too.

Four mistakes that distort LTV

1. Revenue instead of contribution margin. A $600 revenue LTV invites acquisition costs that a $240 margin LTV never pays back.
2. Returns in the order value. Use revenue after returns. Otherwise you count orders that came back.
3. Lifespan guessed instead of measured. A store that has sold for two years has no five-year customers yet. Use your oldest cohorts and extrapolate with care.
4. One average for every channel. Customers from brand search and customers from discount campaigns reorder at different rates. Split LTV by acquisition channel before you move budget.

The last point decides your ad budget. If one channel brings customers worth $150 and another brings customers worth $300, you can pay twice as much per customer in the second.

Increase LTV: four levers compared

The formula multiplies four factors, so a 10% gain in any one of them raises LTV by 10%. The question is which lever costs you least.

Four small steps compound to 46% more LTV. You raise frequency and lifespan through email, WhatsApp and winback flows without extra ad spend. How that setup works, and what drives the cost of customer retention, is on our retention page.