What Is Customer Lifetime Value (LTV)?
Customer lifetime value (LTV) is the revenue or gross profit a business expects to earn from a customer over the time they remain a customer. For Shopify merchants, LTV helps compare the long-term value of a customer with the cost of acquiring that customer.
Revenue LTV measures sales before product costs; profit LTV accounts for cost of goods sold (COGS). Use profit LTV when assessing acquisition economics, because sales revenue is not the amount available to cover advertising and operating costs.
Customer Lifetime Value Formulas
Simple revenue LTV
Revenue LTV = Average Order Value × Purchase Frequency per Year × Customer Lifespan in Years
Profit LTV
Profit LTV = Revenue LTV × Gross Margin
Gross Margin = 1 − COGS Percentage
Churn-based LTV
Expected Customer Lifespan in Months = 1 ÷ Monthly Churn Rate
Churn-Based Profit LTV = Monthly Revenue per Customer × Gross Margin ÷ Monthly Churn Rate
DCF-adjusted LTV
DCF LTV = Σ [Expected Profit in Period t ÷ (1 + Discount Rate)^t]
The churn formula assumes a steady churn rate, while the discounted cash flow (DCF) formula values future profit less than profit received today. Keep time units consistent: use monthly churn with monthly revenue, and annual discounting with annual cash flows.
How to Use This Calculator
- Avg Order Value — Enter the average amount a customer spends per order, excluding any taxes you do not retain.
- Purchase Frequency — Enter the average number of orders each customer places per year.
- Customer Lifespan — Enter the average number of years customers stay active. Use cohort data where possible rather than an optimistic guess.
- COGS — Enter product costs as a percentage of revenue. The calculator uses this to derive gross margin.
- Gross Margin — Enter your gross margin percentage if you want to provide it directly; it is auto-calculated when you enter COGS.
- Monthly Churn — Enter the percentage of customers who stop buying each month. Use this for the churn-based estimate.
- CAC — Enter customer acquisition cost to calculate net LTV and the LTV:CAC ratio. Calculate blended or paid-only CAC with the Customer Acquisition Cost (CAC) Calculator.
- Discount Rate — Enter the annual rate used to discount future profit to present value. A business may use its cost of capital or another rate suited to its planning assumptions.
Step-by-Step Example
Suppose a Shopify skincare store has an average order value of $72, customers place 4 orders per year, and the average customer remains active for 3 years. COGS is 35%, and CAC is $60.
| Calculation | Math | Result |
|---|---|---|
| Revenue per customer per year | $72 × 4 | $288 |
| Revenue LTV | $288 × 3 | $864 |
| Gross margin | 100% − 35% | 65% |
| Profit LTV | $864 × 0.65 | $561.60 |
| LTV:CAC ratio | $561.60 ÷ $60 | 9.36:1 |
The simple model estimates $561.60 in gross profit before acquisition and other operating expenses. The ratio compares gross profit LTV with CAC; it is not net business profit, since it does not subtract fulfillment, platform, support, or overhead costs.
Choosing the Right LTV Model
The simple model is useful when purchase frequency and lifespan are reasonably stable. The churn-based model is often more relevant for subscriptions or repeat-purchase businesses that track monthly customer cancellations. It estimates expected lifespan as the inverse of churn, so a small change in churn can substantially change the result.
DCF-adjusted LTV is useful when future cash flows matter to a decision, such as setting an acquisition budget or comparing marketing with another investment. A higher discount rate lowers the present value of future profit. For a broader comparison of ratio and payback assumptions, use the LTV:CAC Ratio Calculator or CAC Payback Period Calculator.
Treat every model as an estimate, not a guarantee. Shopify cohort reports can help you compare repeat-purchase behavior across customers acquired in different periods. The U.S. Small Business Administration’s market research guidance recommends examining customer demand and market conditions; use that research alongside your own sales data rather than relying on a generic industry average.
Industry Benchmarks
There is no universal LTV benchmark: order values, repeat rates, margins, and business models differ. The ranges below are rough planning references, not audited industry averages; compare them with your own customer cohorts and profit margins.
| Product or model | Illustrative revenue LTV range | What to check |
|---|---|---|
| Low-repeat accessories or gifts | $100–$300 | Whether second purchases justify the acquisition cost |
| Consumables and replenishment products | $200–$700 | Reorder timing, margin, and subscription retention |
| Subscription products | $500–$2,000+ | Monthly churn, discounts, and cancellation behavior |
| Higher-priced durable goods | $300–$1,000 | Accessories, upgrades, and later repeat purchases |
A ratio near 3:1 or higher is often used as a starting point for assessing LTV against CAC, but it is not a universal target. A high ratio can still hide slow cash recovery or omitted costs; use ROAS Calculator to assess campaign-level returns and payback separately.
6 Ways to Test Your LTV Assumptions
- Change lifespan from 2 years to 3 years and see how much the simple estimate depends on customer retention. Check the result against Shopify customer cohorts before using the higher value in an ad budget.
- Raise COGS from 30% to 38% to model a supplier price increase. Compare profit LTV, not only revenue LTV, when deciding whether to adjust prices.
- Test monthly churn at 6% instead of 4% for a subscription cohort. If the result falls sharply, review cancellation reasons and renewal behavior before increasing acquisition spend.
- Increase CAC by 20% to model a more competitive advertising period. If the ratio no longer meets your target, test a lower-cost channel or revise your allowable bid.
- Raise the discount rate from 8% to 12% to see how sensitive a long-term plan is to the value assigned to future profit. Use the rate consistently when comparing investment options.
- Separate paid and blended CAC before changing campaign budgets. The Meta Ads Budget Calculator can help model ad spend against a revenue target, but the LTV comparison should use the matching acquisition-cost definition.
If you sell subscriptions, make cancellation terms clear and track cancellations by cohort; the FTC’s negative-option guidance explains consumer-protection requirements for recurring-payment offers.
Frequently Asked Questions
How do you calculate customer lifetime value?
The simple LTV formula is average order value multiplied by purchase frequency and customer lifespan: $65 × 3 × 2.5 = $487.50 revenue LTV. Multiply revenue LTV by gross margin to estimate profit LTV; this calculator also compares churn-based and DCF-adjusted estimates.
What is a good LTV for ecommerce?
There is no universal benchmark because product margins, repeat-purchase rates, and acquisition costs vary by store. A 3:1 LTV:CAC ratio is commonly treated as a healthy starting point; Shopify revenue LTVs may range from $100–$500, while subscription brands can reach $500–$2,000 or more.
What is the difference between revenue LTV and profit LTV?
Revenue LTV is total expected customer spend, while profit LTV subtracts COGS through the gross-margin calculation. For example, $500 revenue LTV at 40% COGS leaves $300 in gross profit; with $100 CAC, the profit-based LTV:CAC ratio is 3:1, not 5:1.
How does churn rate affect LTV?
Churn determines estimated customer lifespan in the churn-based model: lifespan in months equals one divided by monthly churn. At 5% monthly churn, the estimate is 20 months; at 3%, it is about 33 months, roughly 65% longer, so even a modest retention improvement can change projected LTV.
What is DCF-adjusted LTV?
DCF-adjusted LTV discounts expected future profit to reflect that money received later is worth less than money received now. For instance, at a 10% discount rate, $300 of future profit may have a present value of about $260, depending on when the cash arrives.
About This Calculator
The Customer Lifetime Value Calculator was built by Luis Dev Studio for Shopify merchants comparing customer profit, churn, and acquisition cost. For help applying the results to your store, contact us.
Updated by Luis Gonzalez · May 4, 2026