# Customer Lifetime Value Formula: How to Calculate CLV

- URL: https://betteranalyst.com/metrics/customer-lifetime-value
- Published: 2026-10-30
- Updated: 2026-10-30
- Author: David Bressler, Founder (https://betteranalyst.com/authors/david-bressler)

> **Summary:** Customer lifetime value (CLV) = Average order value × Purchases per year × Gross margin × Customer lifespan in years. For subscriptions, use ARPA × Gross margin ÷ Churn rate. A shop with $64 orders, 2.6 orders a year, a 58% margin and a three-year lifespan has a CLV of $289.54 in gross profit.

Category: [Ecommerce](https://betteranalyst.com/metrics#ecommerce)

Customer lifetime value formula for ecommerce and subscriptions, a worked example, the Excel formula, and why CLV should use gross margin, not revenue.

## Customer lifetime value (CLV / LTV) formula

```
CLV = Average order value × Purchase frequency per year × Gross margin % × Average customer lifespan (years)
```

- **Average order value**: Revenue ÷ number of orders over the measurement period.
- **Purchase frequency**: Orders per customer per year: orders ÷ unique customers in a 12-month window.
- **Gross margin**: Share of revenue left after cost of goods, as a decimal. Using margin makes CLV comparable with acquisition cost.
- **Customer lifespan**: Average number of years a customer keeps buying, usually estimated from cohort data or as 1 ÷ annual churn.

## How to calculate customer lifetime value (CLV / LTV) in Excel and Google Sheets

Excel, using the cells in the worked example below:

```
=B2*B3*B4*B5
```

## Worked example

An online specialty tea shop wants a CLV estimate to decide how much it can pay to acquire a first-time buyer through paid social.

*Inputs from the last 24 months of orders (table starts in cell A1)*

| Input | Value |
| --- | --- |
| Average order value | $64.00 |
| Orders per customer per year | 2.6 |
| Gross margin | 58% |
| Average customer lifespan (years) | 3.0 |

1. Annual revenue per customer = 64.00 × 2.6 = $166.40.
2. Annual gross profit per customer = 166.40 × 0.58 = $96.51.
3. CLV = 96.51 × 3.0 = $289.54 of gross profit over a customer's lifetime.
4. On revenue alone the figure would be $499.20, which overstates what you can afford to spend on acquisition.

**Result:** $289.54 customer lifetime value (gross profit basis)

## How to interpret customer lifetime value (CLV / LTV)

CLV is most useful as a ceiling on acquisition cost and as a way to compare segments, for example customers acquired through search versus paid social, or those whose first order included a subscription. Treat any single CLV number as an estimate: lifespan is the hardest input, and young businesses often don't yet have enough history to observe it. Prefer cohort-based CLV (actual cumulative gross profit per customer by months since first order) once you have 12–24 months of data, and refresh it quarterly.

## Common mistakes

- Using revenue instead of gross margin. Revenue CLV makes every acquisition channel look affordable.
- Assuming lifespan instead of measuring it. Estimate from cohort retention curves, or as 1 ÷ annual churn, and say which.
- Mixing one-time and repeat buyers in an average that hides two very different populations. Segment first.
- Not discounting long lifespans. For lifespans beyond a few years, future gross profit is worth less today; apply a discount rate or cap the horizon.

## Calculate customer lifetime value (CLV / LTV) with Better Analyst

Connect your data or upload a spreadsheet, then ask in plain English. Better Analyst writes and runs the calculation and shows the steps, so you can check the number.

- “Calculate 12-month and 24-month CLV by acquisition channel from our orders table.”
- “Build a cohort chart of cumulative gross profit per customer by first-order month.”
- “Which first-purchase products lead to the highest customer lifetime value?”

Usually calculated from: [Google BigQuery](https://betteranalyst.com/data-connectors/bigquery), [MySQL](https://betteranalyst.com/data-connectors/mysql), [PostgreSQL](https://betteranalyst.com/data-connectors/postgresql), [Snowflake](https://betteranalyst.com/data-connectors/snowflake), [Google Sheets](https://betteranalyst.com/data-connectors/google-sheets), [Google Analytics](https://betteranalyst.com/data-connectors/google-analytics).

[Try Better Analyst free](https://betteranalyst.com/signup)

## Further reading

- [Gross margin formula](https://betteranalyst.com/metrics/gross-margin)
- [Connect MySQL](https://betteranalyst.com/data-connectors/mysql)
- [Analyze order values with a histogram](https://betteranalyst.com/blog/how-to-analyze-order-values-with-a-histogram)
- [Chat with your data](https://betteranalyst.com/product/chat-with-data)
- [AVERAGEIFS function](https://betteranalyst.com/excel/averageifs-function)

## Frequently asked questions

### Is CLV the same as LTV?

Yes. Customer lifetime value (CLV) and lifetime value (LTV) are used interchangeably. SaaS teams usually say LTV and calculate it as ARPA × Gross margin ÷ Churn rate.

### How do I calculate CLV for a subscription business?

Divide monthly gross profit per account by monthly churn: ARPA × Gross margin ÷ Monthly churn. $50 ARPA, 80% margin and 2% churn gives 50 × 0.8 ÷ 0.02 = $2,000.

### Should CLV use revenue or profit?

Use gross profit when comparing with acquisition cost. Revenue-based CLV is fine for sizing a segment, but label it clearly.

## Related metrics

- [Gross Margin Formula: How to Calculate Gross Margin in Excel](https://betteranalyst.com/metrics/gross-margin)