Customer Lifetime Value (LTV) Calculator

What is Customer Lifetime Value and why it matters

Customer Lifetime Value (LTV) is the total revenue a customer generates for your store over the entire duration of their relationship with you. It is one of the most important metrics in e-commerce because it tells you how much you can afford to spend acquiring a customer. If your LTV is $300 and your CAC is $50, you have a 6:1 LTV:CAC ratio — extremely healthy. If your LTV is $50 and your CAC is $50, you are breaking even on acquisition and relying entirely on first-order margin.

For dropshipping, LTV is often underestimated because most dropshippers only calculate first-order value, not lifetime value. But even a modest repeat purchase rate of 20% can double your LTV — which means you can afford to spend 2x more on acquisition, which means you can outbid competitors on ad platforms. This is why LTV is the single biggest lever for scaling paid traffic.

The LTV formula

Simple LTV = Average Order Value × Purchase Frequency × Customer Lifespan
Margin-Adjusted LTV = LTV × (Gross Margin ÷ 100)

The simple formula calculates revenue LTV — total revenue per customer over their lifetime. The margin-adjusted formula multiplies by your gross margin to give profit LTV, which is the number you should use when comparing to CAC. A revenue LTV of $300 at 60% gross margin gives you a profit LTV of $180 — that's the actual profit you make per customer.

Worked example: $58 AOV, 2.5x frequency, 2-year lifespan

Let's calculate LTV for a typical dropshipping store. Your average order value is $58. Your customers purchase 2.5 times per year on average. Your average customer lifespan is 2 years. Your gross margin is 65%.

Revenue LTV = $58 × 2.5 × 2 = $290
Profit LTV = $290 × 0.65 = $188.50

So each customer is worth $290 in revenue and $188.50 in profit over their lifetime. If your CAC is $50, your LTV:CAC ratio is $188.50 ÷ $50 = 3.77:1 — healthy and scalable. If your CAC is $80, your ratio is 2.36:1 — workable but tight. If your CAC is $100, your ratio is 1.89:1 — you are barely profitable per customer and should not scale.

What is a good LTV:CAC ratio?

Below 1:1: Losing money on every customer — stop scaling, fix unit economics. 1:1 to 3:1: Barely profitable or break-even — improve LTV (upsells, retention) or lower CAC. 3:1 to 5:1: Healthy and scalable — scale ad spend gradually. 5:1 and above: Excellent — you are printing money, scale aggressively and compete on CAC. The 3:1 ratio is the industry standard for healthy. Below 3:1, you are spending too much on acquisition relative to the value each customer brings. Above 5:1, you may be underinvesting in growth.

How to increase your LTV

There are four levers to increase LTV, in order of impact. Increase AOV — Bundles, upsells, free-shipping thresholds, quantity discounts. Pushing AOV from $40 to $55 increases LTV by 37.5%. Increase purchase frequency — Email marketing, loyalty programs, subscription options, new product launches. Going from 2x to 3x per year increases LTV by 50%. Extend customer lifespan — Better customer service, product quality, retention emails, win-back campaigns. Going from 1.5 to 2.5 years increases LTV by 67%. Increase gross margin — Negotiate supplier costs, private label winners, cut transaction fees. Going from 50% to 65% margin increases profit LTV by 30%.

A store that improves all four levers by 20% each sees LTV increase by 107% — more than doubling. This is the difference between a store that struggles to scale and one that scales effortlessly.

Dropshipping-specific LTV challenges

Dropshipping has lower LTV than private-label e-commerce because customers don't develop brand loyalty to generic dropshipped products. Typical dropshipping LTV is 1.2-1.5x first-order value (meaning 20-50% of customers make a second purchase). Private-label stores typically see 2-3x first-order LTV.

To improve dropshipping LTV: (1) build a strong brand identity so customers remember your store, (2) capture email addresses on first purchase for remarketing, (3) introduce complementary products so customers have a reason to return, (4) consider private labeling your top 1-2 winners to create brand loyalty, (5) offer subscription options for consumable products.

Common LTV mistakes

The most common mistake is using revenue LTV instead of profit LTV when comparing to CAC. If your revenue LTV is $300 and your CAC is $50, you might think you have a 6:1 ratio. But if your gross margin is 50%, your profit LTV is only $150 — and your actual ratio is 3:1. Always use profit LTV (revenue LTV × gross margin) when comparing to CAC.

The second mistake is not accounting for churn. If 80% of customers never make a second purchase, your average purchase frequency of 2.5x is misleading — it's dragged up by the 20% who buy 5+ times. Track LTV by cohort to see how LTV changes over time. The third mistake is calculating LTV too early — for a new store, use 12-month LTV as a proxy until you have 24+ months of data.

Use the LTV Calculator

Our free LTV Calculator above does the math in seconds. Enter your AOV, purchase frequency, customer lifespan, and gross margin — the calculator returns both revenue LTV and margin-adjusted LTV. Pair it with the CAC Calculator to calculate your LTV:CAC ratio, and the AOV Calculator to track your average order value.