How LTV is calculated
Customer lifetime value is the revenue one customer brings you over the whole time they keep buying. The calculator builds it from numbers your store already reports, all for the same period. It uses net sales, the revenue you keep after discounts and returns, so GST and shipping don’t inflate it.
| Number | How it is worked out |
|---|---|
| Average order value | Net sales ÷ orders |
| Orders per customer | Orders ÷ customers, or 1 if you leave customers empty |
| Periods a customer stays | 1 ÷ (1 − returning customer rate) |
| Customer lifetime value | Average order value × orders per customer × periods a customer stays |
| Lifetime gross profit | Customer lifetime value × gross margin |
The periods a customer stays is an estimate. If 40% of the customers who buy in a period had bought before, we treat that as the chance a customer comes back in the next one. Of 100 customers, 40 come back, then 16, then 6, which adds up to about 1.7 periods each (1 ÷ 0.6). It leans conservative, because customers who have already come back are usually more likely to come back again. Lifetime orders are capped at 10.
A worked example
A skincare brand had ₹1.08 crore in net sales in the last 12 months across 9,000 orders from 6,000 customers, and 40% of those customers had bought before. Its average order value is ₹1,200, each customer ordered 1.5 times in the year, and customers stay about 1.7 years (1 ÷ 0.6). Its LTV is ₹1,200 × 1.5 × 1.67 = ₹3,000. At a 65% gross margin, each customer is worth ₹1,950 in gross profit. If it costs ₹650 to acquire a customer, LTV is 3x CAC.
Without the customer count, the calculator assumes one order per customer per year and estimates ₹2,000. Adding it is worth the minute it takes.
Where to find each number
Pick a period in the calculator and use the same date range for every number. Twelve months is a good default. A shorter period shows how customers behave now, but fewer of them have had time to come back, so LTV reads lower. A longer period catches more repeat orders, but mixes in older behaviour.
| Number | Where to find it |
|---|---|
| Net sales | The query in the calculator. Shopify’s Total sales card includes GST and shipping, so it overstates LTV. |
| Orders | The Orders card on your Shopify Analytics dashboard |
| Returning customer rate | The Returning customer rate card on the same dashboard |
| Customers who ordered | Not on the dashboard. The query returns it along with the other three. |
| Gross margin (optional) | (Selling price − product cost) ÷ selling price. Enter a negative number if you sell below cost. |
| Acquisition cost (optional) | Marketing spend on new customers in a period ÷ new customers won in that period |
Not on Shopify? Customers who ordered is the number of unique customers with an order in the period, and returning customer rate is the share of them who had ordered before.
What is a good LTV?
There is no good LTV on its own. It only means something next to what a customer costs to win. The common rule of thumb is an LTV to CAC ratio of 3:1 on gross profit, meaning each customer brings back three times what you spent to acquire them. Below 1:1 you lose money on every new customer. Between 1 and 3 you are paying back, but with little room for a bad month on ads.
LTV to CAC tells you whether customers pay back over time. To see whether each order pays for the ads behind it, use the break-even ROAS calculator.
How to raise LTV
Order value and orders per customer move LTV in a straight line. Returning customer rate compounds. Going from 40% to 50% lifts LTV by 20%, and from 50% to 60% by another 25%. That is the job of retention, and these are the levers that usually matter most.
- Getting first-time buyers to a second order, timed to how long the product lasts.
- Winning back customers who drifted, with their own history, not a bigger discount. See how that worked in win-back campaigns that work.
- Making sure your messages actually arrive. Delivery is often the cheapest fix, as covered in why WhatsApp delivery drops.
- Cross-selling the natural next product, as in the Healthify Store case study.
Questions about LTV
What is customer lifetime value?
Customer lifetime value (LTV or CLV) is the total revenue, or profit, a customer brings your business over the whole time they keep buying from you.
How do you calculate LTV for a D2C brand?
Divide net sales (after discounts and returns, before GST and shipping) by orders for average order value, and orders by customers for orders per customer. Estimate how many periods a customer stays as 1 divided by (1 minus your returning customer rate). Multiply the three, then multiply by gross margin to see it as profit.
Where do I find my returning customer rate on Shopify?
Shopify Analytics shows it on the dashboard. It is the share of customers in the period who had bought from you before. Use the same date range as your net sales and orders.
How do I find how many customers ordered on Shopify?
It is not on the Analytics dashboard. Open Analytics, select New exploration and paste the query from the calculator on this page. It returns net sales, orders, customers and returning customer rate together. You can also ask Sidekick for the same numbers in plain English.
What is a good LTV to CAC ratio?
The widely used rule of thumb is 3:1 on gross profit. Below 1:1 you lose money on each new customer, and well above 5:1 can mean you are under-investing in growth.
Should I use revenue or profit for LTV?
Use profit when you compare LTV with acquisition cost, because you only earn back CAC from what is left after product cost. Revenue LTV is fine for tracking whether retention is improving.
How is LTV different for subscriptions and apps?
For subscriptions, LTV is usually average revenue per user per month divided by monthly churn. The D2C formula on this page assumes customers buy when they need to, not on a fixed plan.
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