Handeware
Business

Lifetime value after margin

$432.00
Revenue per customer
$720.00
Lifetime value to cost to win
3.6

This is arithmetic for general information, not financial advice.

Customer Lifetime Value Calculator

Customer lifetime value, or LTV, estimates how much one customer brings in over the time they stay with you. Enter what a typical customer spends, and the page works out the total, then the part you keep after costs.

How it works

Revenue per customer is the average order, times orders per year, times the years a customer stays. The margin-adjusted value takes off the share of that revenue spent making the product or service.

To compare with acquisition cost, divide the margin-adjusted value by what it costs to win one customer. If you leave the cost at zero, the ratio shows zero rather than a number.

Worked example

A typical customer brings in $720.00 in revenue. After margin, that is $432.00 of lifetime value, which is 3.6 times what it cost to win them.

Questions

Where should the years figure come from?

Use real data where you have it, such as how long past customers kept buying. A rough guess is fine for a first look, but say so when you share the number.

Why is margin included?

Revenue is not profit. Part of every sale pays for the product, so the margin shows what the customer leaves you to spend.

Does this allow for repeat buying?

Yes, through the orders per year. It assumes the same pattern each year, so change the inputs to test a bigger or smaller group.

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