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How this calculator works
Annual revenue per customer is calculated by multiplying average purchase value by purchase frequency — for subscription businesses, purchase frequency is 12. Gross LTV is derived by multiplying annual revenue by the average customer lifespan in years, which can be calculated from churn rate (1 divided by monthly churn) for subscription models. Net LTV applies your gross margin percentage to the gross LTV, giving the actual profit contribution per customer after direct costs. The LTV/CAC ratio divides net LTV by customer acquisition cost — a ratio above 3x is considered healthy, above 5x is excellent, and below 1x means you are losing money on every customer acquired.
Useful scenarios
- A course creator with $100 average purchase, 2 purchases/year, 2-year customer lifespan, 70% margin, and $30 acquisition cost.
- A SaaS founder with $29/month subscription, 3-year average retention, 80% margin, and $75 acquisition cost.
- A freelancer with repeat clients averaging $500/project twice a year, 4-year client relationship, 85% margin, and $150 in networking cost per client.
FAQ
What is a good LTV/CAC ratio?
3x or higher is generally considered healthy — you're earning 3× what you spent to acquire the customer. 1-3x means you're barely covering acquisition costs. Below 1x means you're losing money on every customer. Top-performing SaaS companies often have 5x+ ratios.
How do I estimate customer lifespan accurately?
For subscription businesses: 1 ÷ churn rate. If monthly churn is 5%, average lifespan = 1 ÷ 0.05 = 20 months. For one-time purchases, estimate how many years a customer will repurchase based on your repeat purchase data.
Does LTV apply differently to physical vs digital products?
Physical products typically have lower margins (30-50%) and higher purchase frequency. Digital products have higher margins (70-90%) but may have lower frequency. Both benefit from extending customer lifespan through email marketing, loyalty programs, and quality.