How to Calculate Customer Lifetime Value (Formula, Examples & Calculator)

The customer lifetime value (LTV) formula is: LTV = Average Order Value × Purchase Frequency × Customer Lifespan. This tells you the total revenue an average customer generates over their entire relationship with your store — the foundational number for evaluating whether your acquisition spend, pricing, and retention tactics are actually working.

This guide walks through every step of the LTV calculation with worked examples, shows you how to find the inputs in Shopify Analytics, and explains what to do with the number once you have it.

What Is the Customer Lifetime Value Formula?

There are two versions of the LTV formula — revenue LTV and profit LTV.

Revenue LTV tells you how much money flows in from an average customer. Profit LTV tells you what's actually left after the cost of goods. For most business decisions — especially comparing LTV to your customer acquisition cost — use profit LTV. It prevents the mistake of thinking a $300 LTV is healthy when your margin is 20% and you're really earning $60.

How to Calculate LTV Step by Step

Here is the full calculation using a realistic example.

Step 1: Find your Average Order Value (AOV)

AOV = Total Revenue ÷ Total Number of Orders in the period.

In Shopify: go to Analytics → Reports → Overview. Average order value is shown as a headline metric. You can filter by date range to see AOV for a specific period.

Step 2: Calculate purchase frequency

Purchase Frequency = Total Number of Orders ÷ Number of Unique Customers in the same period.

In Shopify: go to Analytics → Customers → Customer cohort analysis. This shows how many orders your average customer places within each cohort year.

Step 3: Estimate customer lifespan

Customer Lifespan = 1 ÷ Annual Churn Rate. If you know your annual retention rate, use: Lifespan = 1 ÷ (1 - Retention Rate).

If you don't know your churn rate yet, use 1.5–2 years as a conservative estimate for a new ecommerce store.

Step 4: Multiply to get revenue LTV

Step 5: Apply gross margin for profit LTV

This store's average customer is worth $351.90 in revenue and $140.76 in gross profit over their lifetime. If their CAC is $40, the profit LTV:CAC ratio is 3.5:1 — healthy. If CAC is $80, the ratio drops to 1.76:1 — thin but manageable with improvement.

What Is the LTV:CAC Ratio and How Do I Calculate It?

The LTV:CAC ratio divides your customer lifetime value by your customer acquisition cost. It tells you how many dollars you earn for every dollar spent on acquisition.

Using the example above: $351.90 ÷ $40 CAC = 8.8:1 LTV:CAC ratio — a healthy, growth-stage business. If the same store had a $120 CAC: $351.90 ÷ $120 = 2.9:1, which is at the lower edge of acceptable.

For a complete guide on this ratio — including how to benchmark it by niche and what to do if yours is below 3 — see: CLV:CAC Ratio — What It Is and How to Improve It.

Where Do I Find LTV Data in Shopify?

Shopify doesn't display a native "LTV" metric, but it provides all the inputs you need:

• Average Order Value: Analytics → Overview dashboard → Average order value card
• Purchase Frequency: Analytics → Customers → Customer cohort analysis → Orders per customer
• Customer Retention: Analytics → Customers → Returning customer rate
• Cohort Analysis: Analytics → Customers → Customer cohort analysis (shows retention by acquisition month)
• Revenue per Customer: Analytics → Customers → Customers over time report

For more advanced LTV analysis — including cohort-based LTV and predictive LTV — you'll need a third-party analytics tool or a spreadsheet pulling from the Shopify API.

LTV Calculation Method Comparison

For most Shopify merchants, the simple formula is the right starting point. It gives you a directionally accurate number fast, and reveals which of the three levers (AOV, frequency, lifespan) is weakest — which is what matters for making decisions.

How Often Should I Recalculate LTV?

Recalculate LTV at minimum quarterly. Seasonal shifts significantly affect purchase frequency — a food brand may see 4x frequency in Q4 that drops to 1.5x in Q1. Annual averages can mask important variation.

Recalculate immediately after:

• Launching a new product line (changes AOV)
• Running a major promotion (changes frequency and potentially lifespan)
• Changing your pricing (changes AOV and margin)
• Switching acquisition channels (different channels produce customers with different LTV profiles)

How to Improve Your LTV After Calculating It

The LTV calculation reveals exactly which lever to pull. Here's how to read the results:

• If purchase frequency is low (<2/year): Focus on re-engagement. Group buying campaigns are the fastest mechanism — they give existing customers a concrete, time-limited reason to return and bring friends.
• If AOV is low (below your industry benchmark): Run bundle offers, upsells at checkout, or minimum order thresholds for free shipping.
• If customer lifespan is short (<1.5 years): Focus on post-purchase onboarding. Most churn happens in the first 90 days after first purchase — a strong welcome sequence can cut early churn significantly.
• If gross margin is thin (<35%): Before increasing LTV, look at COGS. LTV improvement has limited value if margin erodes simultaneously.

For the full playbook on improving each LTV component, see: 11 Ways to Increase Customer Lifetime Value in Ecommerce.

Frequently Asked Questions