CLTV formula

Here, ARPU is the average revenue per user and churn rate is the percentage of customers cancelling in a given period. The lower your churn, the longer the average customer lifespan and the higher the resulting CLTV.

Here’s what each part means:

• Average Order Value (AOV) is the average amount a customer spends per transaction.
• Purchase Frequency is how often a customer buys from you in a given time period.
• Customer Lifespan is the average length of time a customer stays active with your brand.

For a sharper, profit-based view, multiply the final result by your gross margin so the number reflects profit rather than revenue.

Why is CLTV important?

Knowing your CLTV helps you:

• Determine how much you can afford to spend on acquiring new customers, also known as customer acquisition cost (CAC)
• Improve customer retention strategies
• Identify high-value customer segments
• Increase profitability through better targeting and upselling

CLTV is most useful when read alongside CAC. The CLTV:CAC ratio (3:1 or higher is generally considered healthy) tells you whether each new customer is paying back enough over their lifetime to justify the cost of winning them.

For example:

If AOV = $50, Purchase Frequency = 4 per year, and Customer Lifespan = 3 years:
CLTV = $50 × 4 × 3 = $600

This means each customer is expected to generate $600 in revenue over their lifetime.

To apply this formula to your own store’s numbers, you can use the LTV calculator instead of doing the math by hand.

Driftcharge Tip

Improving CLTV isn’t just about increasing purchases. It comes from delivering consistent value, improving customer experience, and reducing churn through smart retention tactics. Even a small drop in churn can meaningfully extend the average customer lifespan, which has a compounding effect on CLTV.

Ganesh Pawar

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Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.