LTV calculator

Average order value is revenue divided by orders over a recent, representative period. Use a period long enough to survive one promotion, because a single discount week can move it enough to change every figure below.

Orders per customer per year is the part people guess at and should not. It comes from the order history: count the orders a cohort of customers placed in their first twelve months and divide by the number of customers in the cohort. A business with a long tail of one-time buyers will find this number lower and less comfortable than the one it had been using.

Expected customer lifespan is the estimate that does the most damage when it is generous. The defensible version is drawn from retention curves you can see rather than from a curve you expect. If eighteen months of history is all there is, a three-year lifespan is a forecast wearing the clothes of a measurement.

Gross margin is the share of revenue left after the direct cost of delivering the order: product, freight, payment fees, whatever your accounting treats as cost of goods. It is optional here, and without it the page can only produce lifetime revenue — a number worth almost nothing for an acquisition decision.

A customer who spends a thousand at a twenty per cent margin and one who spends four hundred at a fifty per cent margin produce the same gross profit, and one of them looks twice as valuable in a revenue-based report. Media is paid for out of gross profit, so the profit line is the only one that can be compared to what acquisition costs.

This matters most when the mix shifts. A promotion that lifts average order value by selling lower-margin products raises revenue-based lifetime value and lowers the real one. A subscription that adds a high-margin service to the same customer does the opposite. A business tracking only the revenue figure sees the first as good news and the second as noise.

It also decides arguments between channels. Two channels reporting identical revenue per customer can be delivering different margins, because they sell different products to different people. Ranking them on revenue puts the wrong one first, and the ranking survives for as long as nobody applies a margin to either.

The three-year figure is the ambition. The first-year figure is what most businesses can actually finance.

Acquisition is paid for now and repaid over the life of the customer, so the constraint is rarely whether the unit economics work — it is whether the cash lasts long enough for them to work. A customer worth 648 in gross profit over three years, of which 216 arrives in the first year, will not support a 400 acquisition cost in a business that has to pay its media bill every month, however healthy the ratio looks over the full horizon.

Reading the two together is what stops a good ratio from becoming a cash crisis. The lifetime figure sets the ceiling on what a customer may ever cost. The first-year figure sets what the business can afford to pay for them today.

Averaging across cohorts that are not alike. Customers acquired through a deep discount retain differently from customers acquired at full price. A single blended lifetime value across both describes neither and is usually used to justify more of the cheaper one.

Survivorship in the lifespan. Measuring the lifespan of the customers still active today ignores everybody who left, which is exactly the population the estimate needs to include.

Extrapolating a young curve. Retention flattens, but the point at which it flattens is not knowable from the steep part. Projections made before the curve has flattened are almost always high.

Counting revenue the business never keeps. Returns, chargebacks and cancelled subscriptions belong in the order value before it is typed, not in a footnote under the result.

Treating an average as a customer. Most businesses have a small group of customers worth many times the mean and a long tail worth a fraction of it. The average describes neither group, and an acquisition strategy built on it aims at a person who does not exist.

Holding it still. Lifetime value is not a constant. Price changes, product changes and a shift in the acquisition mix all move it, and a figure computed once and quoted for two years is eventually fiction.

Set the acquisition ceiling from the gross profit figure rather than the revenue one, and then decide which horizon the business can finance. Dividing lifetime gross profit by the ratio the business wants back gives the most a customer may cost; dividing the first-year figure the same way gives the version that does not depend on the future being kind.

Then work the number itself, because it is at least as movable as acquisition cost and nobody treats it that way. Frequency responds to reminders, replenishment timing and a reason to come back. Order value responds to bundles, thresholds and a better-chosen product in the ad. Margin responds to pricing, packaging and freight. Each of them raises the ceiling on what the business can afford to pay for the next customer, without winning a single additional auction.