Free LTV Calculator – Customer Lifetime Value & LTV:CAC

Customer Lifetime Value and Why the LTV:CAC Ratio Matters

Customer lifetime value, often written LTV or CLV, is the total profit you expect from a customer across the entire time they stay with your business. It reframes a customer from a single sale into a long-term relationship, which is exactly how sustainable companies think about growth. If you know a customer is worth ₹8,000 in gross margin over their lifetime, you can confidently spend to acquire them and still profit. This calculator offers two proven formulas — a transactional one for repeat-purchase businesses and a subscription one for recurring-revenue businesses — and pairs the result with the LTV:CAC ratio, the single clearest test of whether your growth is profitable. The transactional formula is LTV = average order value × purchase frequency × customer lifespan × gross margin. Average order value is the typical basket size, purchase frequency is how often a customer buys per period, lifespan is how many periods they stay, and gross margin, as a decimal, strips out the cost of goods so you are counting profit rather than revenue. The subscription formula is LTV = ARPU × gross margin ÷ churn rate, where ARPU is average revenue per user per period and churn rate is the fraction of customers you lose each period. That division by churn works because the implied average lifespan of a subscriber is one divided by the churn rate, so a 5 percent monthly churn implies a 20-month average lifespan. Both formulas count margin, not revenue, which is the mistake that makes many LTV figures look far rosier than reality. Here are both in action. For a repeat-purchase store, suppose the average order is ₹1,200, customers buy 4 times a year, stay 3 years, and the gross margin is 60 percent. LTV = 1,200 × 4 × 3 × 0.6 = ₹8,640. For a subscription product, suppose ARPU is ₹500 a month, gross margin is 80 percent, and monthly churn is 5 percent. LTV = 500 × 0.8 ÷ 0.05 = ₹8,000. Now compare either figure to your acquisition cost. If your CAC is ₹2,000 and LTV is ₹8,000, the LTV:CAC ratio is 8,000 ÷ 2,000 = 4:1, comfortably inside the healthy zone. That ratio is the payoff of the whole calculation. Interpreting the ratio is where the real judgement lives. A ratio below 1:1 means each customer costs more than they are worth, so you are losing money on growth and must fix acquisition cost or retention before scaling. Around 3:1 is the widely cited healthy target popularised by investor David Skok and repeated by Corporate Finance Institute, indicating a business that acquires customers profitably with room to reinvest. A ratio above 5:1 is not automatically good news — it can signal that you are underinvesting in growth and leaving expansion on the table by being too cautious with marketing. E-commerce teams use transactional LTV to justify acquisition budgets, SaaS teams use subscription LTV to price plans and forecast revenue, and finance teams use the present-value option, which discounts future margin by a periodic rate, when they want a more conservative figure for far-off cash flows. The honesty notes here are important because LTV is easy to inflate. Always use gross margin, not revenue, or you will massively overstate a customer's worth and overspend to acquire them. LTV is a forecast built on assumptions about lifespan and churn that may not hold, so treat it as a planning estimate rather than a promise, and revisit it as real data arrives. The subscription formula assumes churn stays roughly constant, which is rarely perfectly true, and it breaks down entirely at zero churn, where lifespan becomes infinite and the tool returns a dash instead of a fantasy number. Read LTV beside CAC and payback period rather than in isolation, and remember it is not financial advice. Everything runs in your browser, with guards against dividing by zero churn, and none of your business numbers are uploaded, logged, or stored anywhere.

LTV Calculator Formula & Method

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