Should LTV use revenue or gross profit?

Gross profit. Revenue LTV looks great and means nothing because it ignores COGS, shipping, and fees. Profit LTV (revenue times gross margin) is the number you can actually use to set a CAC target. If you have strong gross margin (70 percent plus, typical for beauty and supplements), the two numbers are close. On apparel or consumables with 35 to 50 percent margin, they diverge a lot.

How do I find customer lifespan?

Pull your cohorts. Group customers by first-purchase month and track how many are still active (defined as purchased in the last 90 or 180 days) by month 6, 12, 18, and 24. The median time from first purchase to final purchase in a mature cohort is your lifespan. For new brands under 18 months old, use 1.5 to 2.5 years as a reasonable placeholder.

Why is my actual CAC higher than my target CAC?

Either your blended LTV is lower than you projected, or your CAC is inflated because you are counting only paid spend and not platform fees, tooling, and agency retainers. The first problem is a retention issue. The second is an accounting issue. Fix whichever is blocking. Most brands over-index on acquisition and under-invest in the retention systems that push LTV up.

What is the difference between LTV and CLV?

They are the same thing. LTV (Lifetime Value) and CLV (Customer Lifetime Value) are used interchangeably. Some finance teams use CLV specifically when discounting future cash flows to present value; most marketing teams just use LTV and skip the discounting. For DTC scale decisions, undiscounted profit LTV is fine.

Customer & CRM · Free Tool

Customer Lifetime Value Calculator

LTV is the single number that tells you how much you can pay to acquire a customer. Plug in AOV, purchase frequency, lifespan, and margin. Get LTV and a safe CAC target you can hand to your ads team.

LTV = AOV × Purchases per year × Lifespan × Gross Margin

Average order value ($)

Purchases per year

Customer lifespan (years)

Gross margin (%)

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How to use this Customer Lifetime Value Calculator

LTV tells you the maximum amount a customer is worth to you across their entire relationship with your brand. Divide that by three and you get a target CAC that keeps your unit economics healthy (the rough rule: LTV should be at least three times CAC). The math here uses the classic formula: AOV times purchase frequency times customer lifespan, then multiplied by gross margin to convert revenue LTV into profit LTV. Profit LTV is what actually matters. Revenue LTV is a number you quote in a pitch deck.

The two inputs that make LTV move fastest are AOV and purchase frequency. Lifespan changes slowly. Margin changes even slower. A $10 AOV bump on a store with 3 purchases per year and a 2-year lifespan at 55 percent margin adds $33 to LTV immediately. Focus retention and loyalty work on getting a second and third purchase, not on extending lifespan out to 4 or 5 years. Most DTC cohorts decay predictably. Revenue comes from frequency inside the first 18 months, not from year 5.

Recalculate LTV every quarter using actual cohort data, not assumptions. Pull cohorts by acquisition month and track how they spend over time. The LTV you project on day one is usually optimistic because it does not bake in churn. Cohort-based LTV is honest and is the number to budget against.

Frequently Asked Questions

The benchmark is 3 to 1 minimum. LTV below 3x CAC means you are scaling a business that does not make money per customer. LTV above 5x CAC usually means you are under-investing in growth and should push more into acquisition. Most healthy DTC brands sit between 3 and 5. Subscription brands can justify tighter ratios because of recurring revenue.

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