Formula
Lifetime value keeps only the gross-margin share of repeat purchases:
LTV = average order × purchases per year × years × gross margin
Acquisition cost is not subtracted. Compare the result with the acquisition-cost page yourself.
Assumptions
- The order value, frequency, and margin stay constant.
- Gross margin is a percent of revenue, from 0 to 100.
Worked example
A $60.00 order, 4 purchases a year, 3 years, and a 50% gross margin is a lifetime value of $360.00.
Input definitions
- Purchases per year
- How often the customer buys. Zero is allowed and makes the value zero.
- Gross margin
- The percent of revenue left after the cost of goods.
Limitations
This is a planning estimate, not accounting, tax, payroll, or advertising advice. The currency control changes the symbol only.
Questions
Does this subtract the cost to acquire the customer?
No. Use the CAC page for that cost, then compare the two results.
Why multiply by gross margin?
Revenue is not profit. The margin keeps the share left after the cost of goods.