The formula
How to calculate customer lifetime value
Lifetime value is the gross profit a customer generates before they leave. Churn is what turns a monthly figure into a total: at 2.5% a month the average customer stays 40 months, and that multiple is what you are valuing.
Use gross margin rather than revenue. A customer paying £95 a month at a 70% margin contributes £66.50, and valuing them at the full £95 overstates lifetime value by nearly half.
Fill in the following:
- Revenue per customer per month
- Gross margin (%)
- Monthly churn rate (%)
- Customer acquisition cost
Results appear immediately — there is nothing to submit. Changing a field rewrites the link, so you can share the exact scenario you are looking at.
Where a figure is not immediately to hand — a precise interest rate, an exact balance — a reasonable estimate is a perfectly good starting point. Because every result updates instantly, refining a rough guess into the real figure once you have it takes a moment, and nothing about the calculation depends on getting it exactly right on the first attempt.
Why customer lifetime value matters
Most people who look up a customer lifetime value calculation already have a specific number in mind — a quote, an offer, a target — and want to check it rather than learn the theory behind it. This page is built for that: enter your own figures, see the result immediately, and change any field to see how the answer moves without redoing the arithmetic from scratch each time.
This tends to come up when comparing two concrete alternatives — two lenders, two savings products, two ways of structuring the same decision — rather than in the abstract. Run both scenarios through the same calculator with the same assumptions and the comparison becomes fair, because the only thing changing between the two results is the number you are actually trying to test.
It is also worth being clear about what a single figure like this can and cannot settle on its own. It answers the specific question the formula was built to answer, and nothing more — a favourable customer lifetime value result does not automatically mean a decision is a good one overall, since plenty of other factors that a formula cannot capture, from personal circumstances to how comfortable a commitment feels, usually matter just as much as the arithmetic. Use the number as one solid input among several rather than the whole of the decision.
In practice, most people arrive at a page like this one having already tried a version of the calculation by hand or in a spreadsheet, and use the calculator here to confirm it rather than replace it. That is a reasonable way to use it — the two should agree to the last decimal place if the same inputs and the same formula are used, and if they do not, the formula shown above is the one to check your own working against first.
Worked example
Here is the calculation with the starting values:
- Revenue per customer per month: 95
- Gross margin: 70 %
- Monthly churn rate: 2.5 %
- Customer acquisition cost: 500
That gives:
- Lifetime value: 2,660
- Average customer lifespan: 40 months
- LTV to CAC ratio: 5.32 ×
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
The LTV to CAC ratio is the number investors ask for. Above 3 is considered healthy; below 1 means each customer costs more than they are worth, and growth accelerates the losses.
Where this goes wrong. Applying an early churn rate to a long horizon. Churn is usually highest in the first months and falls afterwards, so a blended rate from a young customer base gives a pessimistic lifespan — and one from a cohort of survivors gives an optimistic one.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
Around 3 to 1 is the widely used benchmark. Much higher can indicate underinvestment in growth: if every customer is worth six times what they cost, you should probably be acquiring more of them.
For long-lived customers, yes — money arriving in year five is worth less than money today. Discounting at 10% typically reduces LTV by 15–25%, and the difference matters for anyone with very low churn.
It returns lifetime value. With 95 revenue per customer per month, 70 % gross margin and 2.5 % monthly churn rate, that comes to 2,660. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.