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LTV Calculator
Lifetime value on gross margin, with LTV:CAC and the payback period.
LTV on margin, not on revenue
Order value × orders per year × years gives lifetime revenue. Multiply by gross margin and you get lifetime value — what the customer is actually worth to you. Quoting LTV on revenue inflates it by however much your product costs to make, and it is the most common way an LTV:CAC ratio ends up meaningless.
LTV:CAC and what the ratios mean
Below 1:1 you lose money on every customer. Around 3:1 is the usual healthy benchmark. Far above it — 8:1 or more — is not a triumph; it usually means you are underspending and leaving growth on the table, because a channel that profitable can absorb more budget.
Payback period matters more than the ratio
A 3:1 ratio earned back over three years is a very different business from the same ratio earned back in four months, because the second one funds its own growth and the first needs someone else's money to bridge the gap. Payback is shown below in months for exactly that reason.
It is a forecast
Lifespan and repeat rate are the shakiest inputs in the whole calculation, and a young business is guessing at both. Retention also falls off unevenly rather than smoothly. Treat the output as a planning figure and revisit it once you have real cohort data.