The LTV formula
LTV = AOV × orders per year × lifespan (years), then multiply by gross margin for profit LTV. It's the foundation of how much you can afford to pay for a customer.
LTV drives your CAC ceiling
With a 3:1 target, your max CAC is one third of profit LTV. Compare that ceiling to your real CPA and ROAS to see how aggressively you can scale spend.
Frequently asked questions
How do you calculate customer lifetime value?
A simple, reliable formula is LTV = average order value × orders per year × customer lifespan in years. Multiply by your gross margin to get profit LTV. So a $60 AOV, 3 orders a year, for 2 years is $360 of revenue — and at a 40% margin, $144 of gross profit per customer.
Why does LTV matter for ads?
LTV sets how much you can afford to spend acquiring a customer. If a customer is worth $144 in profit, you can pay far more than a single order's margin to acquire them. Businesses that only look at first-order profit consistently underspend and lose to competitors who bid on lifetime value.
What is a good LTV:CAC ratio?
A 3:1 LTV-to-CAC ratio is the common benchmark — you earn roughly three times what it costs to acquire a customer. This tool shows the max CAC at that ratio. Below 3:1 your margins are thin; far above it you may be under-investing in growth and leaving the market to competitors.
How can I increase LTV?
Raise average order value (bundles, upsells), increase purchase frequency (email, retention, subscriptions) and extend lifespan (better product and experience). Each lever multiplies the others in the formula, so small gains across all three compound into a much higher lifetime value.