Marketing formula

Customer Lifetime Value Formula

Estimate the revenue expected from a customer over the relationship.

The equation

How the formula works

Formula

Revenue LTV = Average purchase value × Purchases per year × Customer lifespan

What each term means

Average purchase value: Average revenue per customer purchase.
Purchase frequency: Average number of purchases per customer in one year.
Customer lifespan: Average number of years a customer remains active.

How to calculate it

1
Multiply average purchase value by annual purchase frequency to estimate annual customer revenue.
2
Multiply annual customer revenue by average customer lifespan.
3
Label the result as revenue LTV so it is not confused with lifetime profit.

Worked example

Put the formula into practice

Average purchase value is $75, customers buy four times a year, and average lifespan is three years.

$75 × 4 × 3 = $900

Estimated customer lifetime revenue is $900 across 12 purchases.

How to interpret the result

This model estimates revenue, not profit. It does not subtract product, acquisition, servicing, overhead, or other business costs.

Compare cohorts built with consistent inputs. A single company-wide average can hide important differences between channels, products, and customer groups.

Revenue LTV versus profit-based LTV

Revenue LTV stops before costs. A profit-based model adjusts lifetime revenue for the costs it is intended to represent. Always label the version used.

Assumptions and limitations

Purchase behavior remains reasonably stable across the estimated lifespan.
Frequency and lifespan use compatible time units.
Historical averages are relevant to the customers being evaluated.

Common mistakes

Treating revenue LTV as lifetime profit.
Mixing monthly purchase frequency with lifespan in years.
Comparing revenue LTV with a profit-based benchmark without labeling the difference.

Frequently asked questions

No. This formula estimates customer lifetime revenue before product, acquisition, servicing, overhead, and other business costs.

No. Subscription and predictive models may use churn, retention curves, discount rates, or cohort-level cash flows. This formula is a practical lifespan-based estimate.

Continue learning

Related business formulas

Marketing

Customer Acquisition Cost Formula

Calculate the average customer acquisition spend required to acquire one new customer.

CAC = Customer acquisition spend ÷ New customers acquired

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Pricing & Profit

Profit Margin Formula

Calculate the percentage of selling price that remains after subtracting cost.

Profit margin (%) = (Selling price − Cost) ÷ Selling price × 100