Customer Lifetime Value (LTV): Formula and Worked Example

What It Means

Customer lifetime value (LTV, also written CLV) estimates how much revenue one customer brings a business across the whole relationship. Stripe's guide builds it from three averages: what a customer spends per purchase, how many purchases they make, and how long they remain a customer. The figure is usually read against customer acquisition cost, to see whether winning customers pays off.

Try It: Work Out One Customer's Lifetime Value

The starting numbers are an example for a small online coffee shop. Put in your own.

Average order ($)Orders a yearYears a customer stays

Years in the estimate3

Revenue a year$240

Lifetime value$720

Each extra year a customer stays adds $240 of revenue, before the cost of what you sold.

To keep a 3 to 1 ratio of LTV to CAC, winning this customer should cost no more than $240.

How People Say It at Work

"Our LTV jumps when people stay past the first year."
"What's the lifetime value of one subscriber?"
"Repeat buyers are where the LTV is."

The Breakdown

Formula

LTV = average purchase value × purchases per year × years as a customer

That's the version in Stripe's guide, where the three parts are the average transaction value, the number of transactions and the customer lifespan.

Worked example. An online coffee shop, with made-up numbers:

Input	Example
Average order	$40
Orders a year	6
Years a typical customer stays	3
Lifetime value	$720

$40 × 6 = $240 a year. Over 3 years, one customer brings in $720.

What the result means. LTV is most useful read next to customer acquisition cost (CAC). Harvard Business School Online gives an LTV to CAC ratio of at least three as the benchmark for most industries, and Stripe says software-as-a-service businesses generally aim for 3 to 1. For the shop above, that points to spending no more than about $240 to win each new customer.

What moves the number. Any of the three inputs. Because they're multiplied together, a 10% change in order size, order frequency or years as a customer changes LTV by the same 10%.

Good to Know

LTV is an estimate built on averages, and a young business has little history to average. Treat the years figure as a guess until you've watched real customers for a while, and update it as the data comes in. The formula above gives revenue. If you'd rather compare profit with costs, multiply by your gross margin first and label the result, so nobody on the team sets a revenue LTV against a profit one.

FAQ

Is LTV the same as CLV?

Yes. Both stand for customer lifetime value. Harvard Business School Online writes LTV, and Stripe's guide writes CLV.

What is a good customer lifetime value?

No single number fits every business, so LTV is judged against what it costs to win a customer. Harvard Business School Online puts the usual benchmark at an LTV of at least three times CAC, and Stripe says SaaS businesses generally aim for 3 to 1.

How can a business raise its LTV?

By moving one of the three inputs: larger orders, more frequent orders, or customers who stay longer. The inputs are multiplied, so a 10% gain in any one of them raises LTV by 10%.

Do It in Buhata

Team Space

Post each quarter's LTV, CAC and the ratio between them on a board in your Team Space in Buhata, so the whole team plans from the same numbers.

Open Buhata

Related Terms and Categories

Customer acquisition cost (CAC)
The average amount a business spends on sales and marketing to win one new paying customer.
LTV to CAC ratio
Customer lifetime value divided by customer acquisition cost, showing how many dollars a customer brings in for each dollar spent winning them.

Business and entrepreneur terms

Sources

Stripe, "What is Customer Lifetime Value (CLV)?"; Harvard Business School Online, "LTV/CAC Ratio: What It Is & How to Calculate It"; Stripe, "CAC SaaS: A guide for businesses"

Last updated September 30, 2026.

Customer lifetime value (LTV)