Customer Lifetime Value (CLTV) Calculator

Estimate the total revenue your business can expect from a single customer account throughout their relationship with your company. Enter the Average Revenue Per Account (ARPA) and Customer Churn Rate.

(ARPA, Monthly)
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(Monthly)
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Estimated Customer Lifetime Value

$2,000.00

Understanding Customer Lifetime Value (CLTV)

Customer Lifetime Value (CLTV or LTV) is a crucial metric that predicts the total net profit a business can expect to generate from a customer throughout their entire relationship with the company. It helps businesses understand the value of acquiring and retaining customers.

How is CLTV Calculated?

There are several ways to calculate CLTV, ranging from simple to complex. A common simple formula, particularly useful for subscription businesses, is:

CLTV = Average Revenue Per Account (ARPA) / Customer Churn Rate

Where ARPA is the average revenue generated per account (often calculated monthly or annually) and Customer Churn Rate is the percentage of customers who stop using your service within a given period (usually monthly).

For example, if your ARPA is $100 per month and your monthly churn rate is 5% (0.05), your CLTV would be $100 / 0.05 = $2,000.

More complex formulas might incorporate Gross Margin or discount rates for future revenue, but this simple formula provides a valuable starting point.

Why is CLTV Important?

  • Profitability Insight: CLTV helps determine how much you can profitably spend on acquiring a new customer (Customer Acquisition Cost - CAC). Ideally, your CLTV should be significantly higher than your CAC (a common benchmark is CLTV:CAC > 3:1).
  • Customer Segmentation: Understanding CLTV allows you to identify your most valuable customer segments and tailor marketing and retention efforts accordingly.
  • Retention Strategy: A low CLTV might indicate issues with customer satisfaction or retention, prompting efforts to improve the customer experience and reduce churn.
  • Long-Term Business Health: It provides a long-term perspective on customer value beyond initial purchases, crucial for sustainable growth.

CLTV vs. LTV

The terms CLTV and LTV (Lifetime Value) are often used interchangeably. Both refer to the total value derived from a customer over the duration of their relationship with a business. Whether based on revenue (as in our calculator) or profit margin, the core concept remains the same: understanding the long-term worth of a customer.

Use our free CLTV calculator above to get an estimate for your business based on your ARPA and monthly churn rate.