CLV / Payback Calculator

Calculate Customer Lifetime Value and find out how much you can spend on acquisition and when the investment returns.

AOV – Average Order Value

How many times a customer buys annually

How long a customer stays active

Average margin per order

Cost to acquire 1 customer

Results

LTV (Profit)
---
LTV/CAC Ratio
---
Payback Period
---

How we calculate it

Annual Revenue = AOV × Frequency
Annual Profit = Annual Revenue × (Margin % / 100)
LTV (Profit) = Annual Profit × Years
LTV/CAC Ratio = LTV Profit / CAC
Payback = CAC / Annual Profit (in years)

Example

AOV $65, 3× yearly, 2.5 years, 35% margin, CAC $45:
Annual Revenue = 65 × 3 = $195
Annual Profit = 195 × 0.35 = $68.25
LTV Profit = 68.25 × 2.5 = $170.63
LTV/CAC = 170.63 / 45 = 3.79
Payback = 45 / 68.25 = 0.66 years = 8 months

LTV Revenue vs. LTV Profit

LTV Revenue = total sales from a customer.
LTV Profit = actual profit after margin. This is the relevant number for comparison with CAC.

Why ratio ~3:1?

Ratio 3:1 is often cited as a healthy range, but it's not a strict rule. With higher margins, you can operate at 2:1; with lower margins, you need 4:1+.

Tips to increase LTV/CAC

  • Increase AOV: bundles, upsell, cross-sell
  • Increase Frequency: email retention, loyalty program
  • Decrease CAC: retargeting, referrals, organic growth

Frequently Asked Questions (FAQ)

What if my LTV/CAC ratio is less than 1?

You have a serious problem. It means you are paying more to acquire a customer (CAC) than you actually earn from them (LTV Profit) over their entire lifetime. With every new customer, you lose money. Immediately reduce marketing costs or increase margin/retention.

What Payback Period is "good"?

It depends on your cash flow. Ideal for e-commerce is "instant payback" (profit immediately on the first order), or within 30-60 days. SaaS companies can afford 12-18 months (because they have recurring revenue). Generally: the shorter the payback, the faster you can reinvest profit into more advertising.

Can I use LTV Revenue instead of LTV Profit?

No! That's a common mistake. You pay for marketing (CAC) from gross profit, not revenue. If you compare CAC with Revenue (LTV), you are deceiving yourself and overestimating customer value. Always calculate with margin.

Why it matters

This is a strategy for the "big players". If you know a customer buys from you 3× a year, you can afford to "overpay" for the first acquisition (even making a loss on the first order) and make it up on subsequent purchases.

CLV (Customer Lifetime Value) gives you a huge advantage over competitors who only look at immediate profit (ROAS on day 1). Payback period also tells you if you have enough money (cash-flow) to sustain such a strategy.

Related Calculators

LTV Calculator

Simpler calculation of lifetime value without acquisition cost context.

Open Calculator

PNO Calculator

For "Daily Business" campaign optimization, when you're not looking at long-term horizon.

Open Calculator

ROAS Calculator

Short-term view of efficiency. Useful for comparison with long-term CLV.

Open Calculator