Cohort Customer Lifetime Value (LTV) Calculator

Enter your average order value (AOV), the average amount a customer spends per transaction, and your annual purchase frequency, or how many times a typical customer buys per year. Enter your annual customer retention rate, the percentage of customers who are still active and buying a year from now, and a discount rate reflecting your cost of capital or required rate of return.

The calculator multiplies AOV by purchase frequency for annual value per customer, converts retention into an expected customer lifespan, and projects 10 years of annual revenue (shrinking each year by the retention rate and discounting it back to today) to produce the final discounted lifetime value.

The calculator runs on these formulas:

Annual Value = AOV × Purchase Frequency

Churn Rate = 100% - Retention Rate

Expected Lifespan (years) = 1 / (1 - Retention Rate)

Discounted LTV = Σ_(t=1)¹⁰ (Annual Value × Retention^(t-1)) / (1 + Discount Rate)^t

Every customer in the cohort buys in year 1, so year 1 counts in full; the retention rate is then raised to the power of t-1 because it compounds: a customer with 75% annual retention has a 75% chance of still being active in year 2, only 0.75² = 56.25% in year 3, and so on, which is why the projection front-loads most of the value into the earliest years. Counting year 1 in full is the same convention the 1 ÷ (1 - r) lifespan uses, so the two figures agree when the discount rate is zero and the horizon is long. Each year's revenue is discounted as if received at the end of that year.

A customer spends $85 per order, buys 4 times a year, is retained at 75% annually, and the business uses a 10% discount rate.

Annual value: $85 × 4 = $340. Churn rate: 100% − 75% = 25%. Expected lifespan: 1 ÷ (1 − 0.75) = 4 years.

Discounting the 10-year stream of $340 × 0.75^(t-1) (a full $340 in year 1, then shrinking for churn each year) at 10% produces a discounted lifetime value of approximately $950 per customer, noticeably below the simple, non-discounted estimate of $340 × 4 years = $1,360, because both churn and the time value of money reduce what those future dollars are worth today.

Of the four inputs, retention rate has by far the largest effect on LTV, because it compounds every year of the projection. Holding AOV, frequency, and discount rate constant at the worked example's values, raising retention from 75% to 85% increases discounted LTV from about $950 to roughly $1,257, a 32% jump from a 10-point retention improvement. Dropping retention to 60% cuts LTV to about $678, a fall of 29%. This is why customer success and retention initiatives typically deliver a larger return on lifetime value than incremental increases to order value or purchase frequency alone.

This page uses a simplified annual model: one retention rate, one AOV, projected over 10 years. The site's SaaS cohort LTV calculator uses a more detailed month-by-month model built from four retention milestones (month 1, 3, 6, and 12), monthly ARPU, a cost-to-serve percentage that nets out gross margin, and a 60-month projection with a monthly-equivalent discount rate.

Use this calculator when you have (or can estimate) a single annual retention figure and want a fast, revenue-based estimate. This model does not net out cost to serve, so the result reflects revenue, not gross profit. Use the SaaS cohort calculator when you have monthly cohort retention data and want a margin-adjusted, month-by-month projection, which is standard practice for subscription software businesses.

Compare this LTV estimate against what you're spending to acquire customers with the customer acquisition cost calculator. A healthy LTV-to-CAC ratio is generally 3x or higher. To model retention and churn directly, use the customer churn and retention calculator, and for subscription businesses with monthly cohort data, see the SaaS cohort LTV calculator.