What is my customer lifetime value (CLV/LTV) and is my CAC healthy? Calculate CLV with simple, margin-adjusted, and retention-based (Fader) models, plus your LTV:CAC ratio and CAC payback period — free and instant.
An online store has an average order value of $60, customers buy 4 times per year, and stay for 5 years on average.
With a customer acquisition cost of $200, the LTV:CAC ratio is $1,200 ÷ $200 = 6.0:1 — well above the healthy 3:1 benchmark. ✅
Same store, but with a 40% gross margin. Annual profit per customer = $60 × 4 × 40% = $96 per year.
CAC payback = $200 ÷ ($60 × 0.333 × 0.40) = $200 ÷ $8 = 25 months to recoup acquisition costs. The profit-based CLV ($480) is far lower than the revenue-based CLV ($1,200) — always model on margin.
Same store with an 85% annual retention rate and a 10% discount rate. Annual margin is $96.
The Fader model values each customer at $326.40. With CAC of $200, the ratio is only 1.63:1 — below the 3:1 benchmark, so improving retention or margin should be a priority before scaling ad spend.
AOV = Average order value ($)
Frequency = Purchases per year
Lifespan = Average customer relationship (years)
Gross Margin = Profit per sale as a decimal (e.g., 0.40 for 40%)
This model measures profit per customer, not revenue — the number that actually matters for your business.
Retention = Annual retention rate as a decimal (e.g., 0.85 for 85%)
Discount = Annual discount rate as a decimal (e.g., 0.10 for 10%)
This model is ideal for subscription and repeat-purchase businesses. The bracket is the retention multiplier: how many years of future profit each customer represents, discounted to today's value.
Healthy LTV:CAC = 3:1 or higher — strong unit economics
Unhealthy = Below 1:1 — you lose money on every customer
Payback = Months until accumulated profit covers acquisition cost; under 12 months is strong for most businesses.
All three models are standard in marketing finance. Start with the simple model for a quick estimate, then switch to the margin-adjusted model to see true profitability, and use the Fader model if your business has recurring customers or subscriptions.
Choose between the simple revenue model, the margin-adjusted profit model, or the retention-based Fader model used by subscription businesses.
Instantly see whether your customer acquisition cost is healthy. A ratio of 3:1 or higher means strong unit economics; below 1:1 means you lose money.
Find out how many months it takes to recoup what you spend acquiring each customer — a key metric for cash flow and scaling decisions.
Every calculation comes with a full formula breakdown, so you can see exactly how your CLV, LTV:CAC ratio, and payback period are derived.
Customer Lifetime Value (CLV) — also called LTV — is the total profit your business can expect to earn from a single customer over the entire relationship. It is one of the most important metrics in business because it tells you how much you can afford to spend to acquire a customer and still make money.
At its simplest, CLV is average order value × purchase frequency × customer lifespan. But revenue-based CLV can be misleading: a customer who generates $1,200 in revenue at a 5% margin is worth far less than one who generates $480 in revenue at a 40% margin. That is why serious businesses use the margin-adjusted and retention-based models.
Because CLV = AOV × frequency × margin × lifetime, you can improve it by attacking any of the four levers. The table below shows the power of retention using the Fader model with a 10% discount rate — even small retention gains create large CLV increases.
| Annual Retention Rate | Retention Multiplier | CLV at $96 Annual Margin |
|---|---|---|
| 70% | 1.75 | $168.00 |
| 80% | 2.67 | $256.00 |
| 85% | 3.40 | $326.40 |
| 90% | 4.50 | $432.00 |
| 95% | 6.33 | $608.00 |
Multiplier = retention ÷ (1 + 0.10 − retention). Moving retention from 85% to 95% nearly doubles CLV.
The LTV:CAC ratio compares the lifetime value of a customer to what it cost to acquire them. A ratio of 3:1 or higher is considered healthy — you earn $3 for every $1 spent on acquisition. Below 1:1, you lose money on every new customer, no matter how fast you grow.
Strong unit economics. You can profitably scale acquisition spend and still grow. This is the benchmark most investors expect from a healthy business.
You are roughly breaking even or making thin margins per customer. Improve retention, margin, or AOV before scaling marketing budgets.
You lose money on every customer acquired. Growing faster only increases losses. Fix your offer, pricing, or funnel before spending more on ads.
The CAC payback period is the second half of the picture: how many months until the profit from a customer covers their acquisition cost. A payback under 12 months is strong for most businesses; longer paybacks strain cash flow, especially for companies that pay for ads upfront. For example, with CAC of $200, AOV of $60, 4 purchases per year, and a 40% margin, monthly profit is $8, so payback is 200 ÷ 8 = 25 months — a signal to shorten it via better retention or higher margin.
Educational Purposes Only: This customer lifetime value calculator is provided for educational and informational purposes only. Results are estimates based on the inputs you provide and standard CLV models. They do not constitute financial, investment, or business advice. Real CLV depends on many factors including customer behavior changes, seasonality, churn patterns, refunds, variable costs, and market conditions. Always validate your assumptions with actual customer data and consult a qualified financial professional before making significant business decisions.