LTV calculation

What is LTV and how is it calculated?

LTV (Customer Lifetime Value) is the total revenue a business expects to earn from a customer over the entire duration of their relationship. It helps businesses understand how valuable each customer is and how much they can afford to spend on acquiring and retaining them.

Why is LTV important for ecommerce and subscriptions?

Knowing your LTV helps you make smart decisions about marketing, pricing, retention, and customer experience. It gives clarity on return on investment (ROI) and helps ensure your customer acquisition cost (CAC) stays profitable.

How to calculate customer lifetime value?

The most common LTV calculation formula is:

LTV = Average Order Value × Purchase Frequency × Customer Lifespan

Here’s a breakdown:

• Average Order Value (AOV): How much a customer spends per order
• Purchase Frequency: How often they buy
• Customer Lifespan: How long they remain a customer

For subscription businesses, a simpler version is:

LTV = Average Monthly Revenue per Customer × Average Customer Lifespan (in months)

Example of LTV calculation

If a customer spends $50/month and stays subscribed for 12 months:
LTV = 50 × 12 = $600

Driftcharge Tip

Monitor your LTV regularly and look for ways to improve it, like upselling, loyalty programs, or reducing churn.

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.