Paid media · free

Customer lifetime value calculator

If people buy from you more than once, judging ads on the first sale alone makes every campaign look worse than it is.

Your numbers

Use averages over the last year rather than your best customer.

$
Example: 1500 — revenue from one purchase
Example: 2 — how often a customer buys
Example: 3 — average customer lifetime
%
Example: 40 — what you keep after costs
$
Example: 400 — current cost per sale

What a customer is worth

Lifetime revenueEverything they ever spend —
Lifetime profitWhat you actually keep —
First-purchase profitWhat one sale alone is worth —
LTV : CAC ratio3:1 or better is healthy —
PaybackPurchases before you break even —

Why first-sale maths misleads you

Say a customer spends 1,500 at 40% margin. The first sale earns you 600. If a customer costs 400 to acquire, that looks like a thin 200 profit — and a lot of people stop advertising there.

But if they buy twice a year for three years, they are worth 3,600 in profit, not 600. The same 400 acquisition cost is now trivial. Nothing about the ads changed — only what you measured.

lifetime profit = order value × purchases per year × years × margin LTV : CAC = lifetime profit ÷ cost to acquire

The ratio people quote, and what it hides

3:1 is the usual benchmark. It is a reasonable rule of thumb, but it hides the question that actually kills businesses: when do you get the money back?

A 5:1 ratio where payback takes two years will bankrupt a company that cannot fund the gap. A 3:1 ratio that pays back on the first purchase is far safer. Ratio tells you if it works; payback tells you if you can survive until it does.

Be conservative with the inputs

  • Years they stay is the number people inflate most. Use what your data shows, not what you hope.
  • Use gross margin, not revenue. Revenue-based LTV numbers look impressive and mean nothing.
  • Average across everyone, including the ones who bought once and vanished. Your best customer is not your average customer.

Common questions

Should I include repeat purchases in my ad targets?

Yes, but carefully. Use lifetime value to decide the maximum you could pay, then set your actual target lower to protect cash flow. Bidding straight to your LTV ceiling leaves no margin for error.

What if I am a one-off service business?

Set purchases per year to 1 and years to 1. Then think about referrals — if one customer reliably brings another, that is genuine lifetime value even without repeat purchases.

How do I find my real retention period?

Take customers who first bought two or three years ago and check how long they kept buying. If you cannot, start with a deliberately pessimistic guess and revise it as you learn.

Want this checked on your real account?

A tool can only work with the numbers you give it. If you want someone to look at what is actually happening in your ad account, the first conversation is free.

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