The formula used here
LTV = AOV × orders per year × lifespan × gross margin. Note the margin multiplier: lifetime revenue is not lifetime value. A customer worth 325 in revenue at 40% margin contributes 130 of gross profit, and that is what you can afford to spend acquiring them.
Which LTV definition to use
Three variants circulate: revenue-based (simplest, most flattering), gross-margin based (used here, most useful for ad decisions), and contribution-based after service costs. State which one you use in any deck — comparisons otherwise mislead.
Levers, ranked by impact
- Retention: extending lifespan from 2 to 3 years raises LTV 50%
- Frequency: a replenishment reminder can double orders per year
- AOV: bundles and thresholds lift the base multiplicatively
- Margin: pricing and supplier work compound across every order
Using LTV in practice
Set your allowable CAC at LTV ÷ 3, then check payback period separately. And segment: LTV for customers acquired through brand search is often several times that of cold social traffic, which changes how much each channel can bid.
Frequently Asked Questions
What is a good LTV to CAC ratio?
3:1 or better is the standard benchmark; 5:1 suggests underinvesting in growth.
Should LTV include discounting?
For quick decisions no; for finance-grade modelling discount future cash flows.
Why is my LTV far below my AOV × orders?
Because margin is applied, and because most LTV formulas assume retention you may not have.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
Privacy & Your Data
BizCalcTool runs entirely in your browser. The figures you enter are never uploaded, stored or shared — there is no backend to send them to.