Customer Lifetime Value

How to Use the Customer Lifetime Value Calculator

Customer lifetime value is the gross profit a single customer generates over the whole relationship, not just the first sale. It sets the ceiling on what you can afford to spend acquiring a customer. Most owners judge marketing by first-order revenue against ad spend, which makes a $120 acquisition cost look reckless against an $85 purchase. Measured over four years of repeat orders, that same $120 can be one of the best buys in the business. Without the lifetime number, you either underspend on growth or overspend on customers who never pay back.

Enter your average purchase value and your customer acquisition cost, the total sales and marketing spend it takes to win one new customer. Then set purchases per year, gross margin, and average customer lifespan with the sliders. The calculator multiplies purchase value by frequency to get annual revenue per customer, applies your margin to get annual gross profit, and multiplies by lifespan to get lifetime value, shown alongside your LTV to CAC ratio. The two stats beneath it show CAC payback, the number of months of gross profit it takes to recover acquisition cost, and the maximum CAC you can pay while holding a 3:1 ratio. The callout reads the ratio for you: under 1x loses money on every customer, 1x to 3x is thin, above 3x is healthy.

The chart plots cumulative gross profit per customer year by year as a solid sage line against a dashed gold line for acquisition cost. The point where the sage line crosses the gold line is payback. A good shape crosses early, within the first year, and keeps climbing well above the CAC line for the rest of the lifespan. A bad shape crawls along under the dashed line for most of the chart, or never crosses it at all, which means every new customer is a loss no matter how many you add.

Predictable Income treats business income as a system you run, not a number you hope for, and customer economics are the core of that system. When you know lifetime value, acquisition spend becomes a decision with a known return rather than a gamble, and you can set a hard CAC limit for every channel before the budget goes out. Re-run this whenever you change pricing, see retention shift, or launch a new acquisition channel with a different cost per customer.