Customer Lifetime Value Calculator
What a customer is worth over their lifetime, from monthly margin and churn, discounted and undiscounted, with the ratio to acquisition cost.
Result
Lifetime value, discounted: $1,043.48
Assumes steady churn and margin. Real cohorts rarely churn at a constant rate.
- Lifetime value, undiscounted
- $1,333.33
- Expected lifetime, months
- 33.3
https://calcgallery.com/business-investing/customer-lifetime-value-calculator/
Results are arithmetic estimates based on the assumptions you enter, not accounting, tax, investment or lending advice. Forecasts can be wrong and important decisions should be checked with a qualified adviser. Read the full disclaimer
How to use the Customer Lifetime Value Calculator
- Enter the gross margin a typical customer brings each month, meaning revenue less the cost of serving them.
- Enter a monthly churn rate, or switch to an average lifetime in months if that is what you know.
- Enter an annual discount rate and, optionally, your customer acquisition cost to see the ratio between the two.
The formula
With monthly margin m, monthly churn c, a monthly discount rate d (the annual rate ÷ 12) and optional monthly margin growth g:
expected lifetime = 1 ÷ c monthsundiscounted LTV = m ÷ cdiscounted LTV = m ÷ (1 + d − (1 − c)(1 + g))The discounted figure is the sum of every future month’s margin, each weighted by the chance the customer is still there and discounted back to today. Month t contributes m × (1 − c)^(t−1) ÷ (1 + d)^t, and the series adds up to the closed form above.
Churn is the number that matters
Lifetime value is very sensitive to churn. Halving monthly churn from 2% to 1% doubles the undiscounted value. Because of this, a small error in the churn estimate becomes a large error in LTV. A churn rate measured over a few months of a young business is rarely stable enough to plan big spending on.
Assumptions
Churn is assumed constant: every customer has the same chance of leaving each month, whether they joined last week or three years ago. Real customers often leave fastest early on, so a single rate can misstate both ends. Treat the result as an estimate to compare options, not a valuation.
With your numbers
- Expected lifetime = 1 ÷ churn = 33.33 months
- Undiscounted = margin ÷ churn = $1,333.33
- Discounted = margin ÷ (1 + d − (1 − churn)(1 + g)) = $1,043.48, with d and g the monthly rates
Quick reference
Assumes steady churn and margin. Real cohorts rarely churn at a constant rate.
| Example | Lifetime value, discounted |
|---|---|
| 40 a month, 3% churn, 10% discount | $1,043.48 |
| 40 a month, 5% churn | $685.71 |
| 40 a month, 1% churn | $2,181.82 |
| 40 a month, no churn | $4,800.00 |
| 40 a month, 24-month lifetime | $800.00 |
| 120 a month, 2% churn, growing 5% a year | $4,630.23 |
Common questions about the Customer Lifetime Value Calculator
- Why use margin and not revenue?
- A customer paying 100 a month who costs 60 to serve is worth 40 a month to you, not 100. Lifetime value built on revenue overstates what you can afford to spend winning a customer, sometimes by a factor of two or more.
- Why is the discounted value lower?
- Margin received in three years is worth less than margin received today, because money in hand can be used or invested now. The discount rate says how much less. At 3% monthly churn and a 10% annual discount rate, 40 a month is worth 1,333.33 undiscounted but 1,043.48 discounted. The lower the churn, the longer the tail and the bigger the gap.
- What happens with zero churn?
- If no customer ever leaves, the undiscounted value has no limit, and the page says so rather than showing an enormous number. Discounting still gives a finite value, because far-future margin is worth almost nothing today: 40 a month at 10% a year is worth 4,800.
- What is a good LTV to CAC ratio?
- This page does not give a target. The ratio tells you how many times over a customer repays what it cost to win them, but what is enough depends on your margins, cash and how reliable the churn figure is. Compare your own ratio over time.
- Where do I get the churn rate?
- From your own customer counts: customers lost in a month divided by customers at the start of it. The churn rate calculator works it out and converts between monthly and annual rates.