What this calculator does
Customer lifetime value, for a retail or e-commerce business, is an estimate of the total revenue a typical customer generates across their whole time buying from the store. It is built from three numbers: how much they spend per order, how often they order, and how many years they keep ordering.
This is a purchase-frequency model, suited to stores where customers place repeat, discrete orders over time, which is the common case in retail and e-commerce. It is a different calculation from subscription-style lifetime value, which is driven by a monthly churn rate rather than an order frequency; the two are built for different business models and are not interchangeable.
The formula
Multiply average order value by purchase frequency, expressed as orders per year, to get annual revenue per customer. Multiply that annual figure by the number of years a customer is expected to keep buying to arrive at lifetime value.
| Term | Meaning |
|---|---|
| LTV | Customer lifetime value: average order value × orders per year × customer lifespan in years. |
| Average order value | The typical revenue from a single order, as calculated by the AOV calculator. |
| Purchase frequency | How many separate orders a typical customer places per year. |
| Customer lifespan | The number of years a typical customer is expected to keep buying before they churn away entirely. |
The inputs explained
| Field | What to enter |
|---|---|
| Average order value ($) | The average revenue per order for this customer segment or store. |
| Purchase frequency (orders per year) | How many orders a typical customer places in a year; a customer ordering roughly once a quarter is a frequency of 4. |
| Average customer lifespan (years) | How many years a typical customer keeps buying before they stop altogether, based on your own repeat-purchase history if you have it. |
When to use it
Setting a customer acquisition budget
Lifetime value sets a ceiling on what is worth spending to acquire a customer; spending close to or above it on acquisition leaves little or no room for profit across that customer’s relationship with the store.
Prioritising retention efforts
Because lifespan multiplies directly into lifetime value, even a modest improvement in how long customers keep ordering can raise the value of the whole customer base without touching order value or frequency at all.
Comparing customer segments
Two segments with the same average order value can be worth very different amounts if one orders twice as often, or sticks around for twice as long, which this calculator makes explicit.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How lifetime value changes with purchase frequency at a fixed order value and lifespan
A fixed $60 order value and 3-year lifespan, across a range of order frequencies.
| Orders per year | Customer lifetime value | Annual revenue per customer |
|---|---|---|
| 1/yr | $180.00 | $60.00 |
| 2/yr | $360.00 | $120.00 |
| 3/yr | $540.00 | $180.00 |
| 4/yr | $720.00 | $240.00 |
| 6/yr | $1,080.00 | $360.00 |
| 8/yr | $1,440.00 | $480.00 |
How lifetime value changes with customer lifespan at a fixed order value and frequency
A fixed $60 order value and 4 orders a year, across a range of customer lifespans.
| Customer lifespan | Customer lifetime value | Annual revenue per customer |
|---|---|---|
| 1 yr | $240.00 | $240.00 |
| 2 yr | $480.00 | $240.00 |
| 3 yr | $720.00 | $240.00 |
| 4 yr | $960.00 | $240.00 |
| 5 yr | $1,200.00 | $240.00 |
| 8 yr | $1,920.00 | $240.00 |
Questions
How is this different from SaaS lifetime value?
A SaaS or subscription lifetime value calculation works from a monthly churn rate, because subscribers pay a recurring amount until they cancel. This calculator works from discrete order frequency and an expected number of years, which fits retail and e-commerce buying patterns where customers place separate orders rather than paying a fixed recurring fee.
Where do I get a realistic customer lifespan figure?
The most reliable source is your own order history: look at how long past customers kept ordering before they went quiet, using whatever gap between orders you consider a sign that they have churned. In the absence of that data, a conservative estimate is safer than an optimistic one.
Does this account for the cost of acquiring or serving the customer?
No, this figure is revenue, not profit. Comparing it against customer acquisition cost, and against the margin earned on that revenue, gives a fuller picture of whether a customer is actually profitable.
Why does a small change in lifespan move lifetime value so much?
Lifespan multiplies directly into the final figure alongside order value and frequency, so a customer base that sticks around one extra year is worth proportionally more, without any change in how much or how often they buy.
To find the average order value feeding into this calculation, see the average order value calculator. For a subscription business driven by churn rather than order frequency, a different lifetime value approach applies.