What is the easiest way to calculate LTV?

The easiest way to calculate LTV is using our free LTV calculator tool, or by multiplying your Average Revenue Per User (ARPU) by your average Gross Margin percentage and Customer Lifespan in months.

What numbers do I need first?

You need four core metrics: total revenue generated, total order counts, average retention periods in months (or churn rates), and variable fulfillment cost rates to define gross margins.

Can I calculate LTV from historical data?

Yes, you can calculate LTV retrospectively by looking at historical user cohorts, tallying their total lifetime checkout transactions, subtracting direct margins, and dividing by total users in that cohort.

How do refunds affect LTV?

Refunds directly reduce your Average Order Value (AOV) and gross margin parameters. You must subtract refunded amounts from total revenue before running LTV calculations to prevent inflation of customer value.

How does churn affect LTV?

Churn has an inverse relationship with customer lifespan. Customer Lifespan = 1 / Churn Rate. A high churn rate shortens customer lifespan, causing LTV to drop drastically.

Should I use revenue or gross profit?

You should always use gross profit (revenue minus variable delivery costs). Using top-line revenue ignores variable fulfillment costs, which leads to incorrect LTV:CAC ratios and overspending on acquisition.

Step-by-Step Tutorial

How to Calculate LTV Step by Step

Direct Answer: To calculate customer lifetime value (LTV), follow a 5-step process: find your average checkout cart size (AOV), multiply by customer transaction frequency, multiply by average account lifespan in months, and multiply by your gross profit margin percentage.

What is the 5-step LTV framework?

Calculate Average Order Value (AOV)

Divide your total revenue over a period by the total number of orders placed in that same timeframe.

Determine Purchase Frequency

Divide the total number of orders by the total number of unique customers over a period to find how often they buy.

Establish Gross Margin Percentage

Subtract variable costs (COGS) from revenue, and divide by revenue to identify the net gross profit rate.

Measure Average Customer Lifespan

Find the average number of months your customers continue purchasing (calculated as 1 divided by your monthly churn rate).

Multiply Inputs to Solve for LTV

Calculate LTV as: AOV × Purchase Frequency × Customer Lifespan × Gross Margin %.

How does a spreadsheet simulation work?

Here is how you can set up a manual Google Sheet or Excel formula to map your customer lifetime value:

Cell

Variable Description

Sheet Value / Formula

A1Average Order Value (AOV)$150.00

A2Purchases Per Month0.50

A3Gross Margin Rate70%

A4Customer Lifespan (Months)24

A5Margin-Adjusted LTV=A1 * A2 * A3 * A4

Output:$1,260.00

Best for:

Founders needing manual sheet audits
Marketers reviewing Shopify data
SaaS controller spreadsheet review
Internal cohort comparison checks

What are common calculation mistakes to avoid?

Top-Line Inflation: Avoid calculating metrics using revenue without accounting for packaging, transaction processing, and support margins. Doing this leads to overestimation of LTV.
Lifespan Errors: Always check that AOV, Purchase Frequency, and Churn are scaled to the same time interval (months vs years).

Frequently Asked Questions

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Related Educational Resources

LTV vs CAC Guide

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LTV Formula Guide

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