Your margin-adjusted LTV is $672 per customer. At a $150 acquisition cost that is a 4.5:1 LTV to CAC ratio, which is healthy. Aim for 3:1 or better.
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Customer lifetime value (LTV, sometimes CLV) is the total profit one customer generates across the entire time they buy from you. Get it right and every other growth decision gets easier: you know what a customer is worth, so you know what you can afford to spend to win one. The calculator above gives you the margin-adjusted number, which is the honest one, plus your LTV to CAC ratio.
The formula is straightforward: average purchase value, times purchases per year, times average customer lifespan in years, times gross margin. Say a customer spends $80 per order, buys 4 times a year, stays with you for 3 years, and your gross margin is 70%. That works out to $80 x 4 x 3 x 0.70 = $672 in lifetime profit. The same inputs before margin give $960 in lifetime revenue, which is why the margin step matters so much: it strips out the cost of actually delivering what you sell. Revenue-based LTV flatters the number; margin-adjusted LTV is the one you can reinvest.
LTV on its own is only half the picture. The other half is what it costs to acquire a customer (CAC). Divide one by the other and you get the LTV to CAC ratio, the single number that tells you whether your growth engine is profitable. A widely used benchmark is 3 to 1: each customer returns about three times what you paid to win them. Below 1:1 you lose money on every sale. Between 1:1 and 3:1 you are profitable but thin. Sitting far above 5:1 is not the trophy it looks like; it usually means you are underspending on acquisition and leaving demand on the table for a competitor to take. The 3:1 to 5:1 band is where most durable businesses want to live.
Three levers move LTV, and they compound. First, retention: keep customers longer and every other input multiplies. A small lift in lifespan often beats a big push on new acquisition. Second, frequency: get customers buying more often through email, reorder reminders, or a subscription option. Third, order value: upsells, bundles, and tiered pricing raise the average purchase. The fourth lever sits on the cost side. Lowering CAC lifts your ratio even when LTV is flat, and organic search is the cleanest way to do it, since organic visitors arrive without a per-click price tag. Pull retention up and acquisition cost down at the same time and the ratio improves from both ends.
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