# Cohort Customer Lifetime Value (LTV) Calculator Model customer lifetime value using discount rate, average order value, purchase frequency, and retention rate for cohort-based forecasting. --- - **Canonical URL:** https://dothecalculation.com/calculators/customer-lifetime-value-detailed-calculator - **Category:** Business tools - **Publisher:** Do The Calculation (https://dothecalculation.com) - **Cost:** Free, no account or sign-up required - **Privacy:** Runs entirely in the browser; inputs are never sent to a server - **Methodology:** https://dothecalculation.com/methodology --- ## Customer Lifetime Value (LTV) Calculator — Discounted 10-Year Cohort Model Estimate the net present value of an average customer from average order value, purchase frequency, retention rate, and a discount rate. - Annual value, churn rate, and expected customer lifespan - 10-year discounted cohort LTV (net present value) - Works for e-commerce, retail, and repeat-purchase businesses ## What This Calculator Measures This calculator estimates Customer Lifetime Value (LTV) — the total discounted revenue an average customer is expected to generate over their relationship with your business — from four inputs: average order value (AOV), how often a customer purchases per year, the percentage of customers retained year over year, and a discount rate that accounts for the time value of money. It uses an annual retention model, not a month-by-month cohort curve. Each year, the customer either stays (at the retention rate you entered) or churns; the calculator projects that pattern out for 10 years and discounts each year's expected revenue back to today's dollars. This makes it a fast, transparent estimate that works well for e-commerce, retail, and any repeat-purchase business where you know (or can estimate) an annual retention rate — as opposed to SaaS businesses with detailed month-by-month cohort data, which are better served by the [SaaS cohort LTV calculator](/calculators/saas-ltv-cohort-calculator) described further down. ## How to Use This 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 LTV Formula The calculator runs on these formulas: $$\text{Annual Value} = \text{AOV} \times \text{Purchase Frequency}$$ $$\text{Churn Rate} = 100\% - \text{Retention Rate}$$ $$\text{Expected Lifespan (years)} = \frac{1}{1 - \text{Retention Rate}}$$ $$\text{Discounted LTV} = \sum_{t=1}^{10} \frac{\text{Annual Value} \times \text{Retention}^{t}}{(1 + \text{Discount Rate})^{t}}$$ The retention rate is raised to the power of \(t\) because it compounds: a customer with 75% annual retention has a 75% chance of being active in year 1, but only \(0.75^2 = 56.25\%\) chance of still being active in year 2, and so on — which is why the projection front-loads most of the value into the earliest years. ## Worked Example: $85 AOV, 4 Purchases a Year, 75% Retention 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\(^t\) (shrinking for churn each year) at 10% produces a discounted lifetime value of approximately $713 per customer — noticeably below the simple, non-discounted estimate of \(\$340 \times 4 \text{ years} = \$1{,}360\), because both churn and the time value of money reduce what those future dollars are worth today. ## Why Retention Rate Drives Everything 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 $713 to roughly $1,068 — a 50% jump from a 10-point retention improvement. Dropping retention to 60% cuts LTV to about $407, nearly in half. 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 Calculator vs. the SaaS Cohort LTV Model This page uses a simplified annual model: one retention rate, one AOV, projected over 10 years. The site's [SaaS cohort LTV calculator](/calculators/saas-ltv-cohort-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. ## Related Calculators Compare this LTV estimate against what you're spending to acquire customers with the [customer acquisition cost calculator](/calculators/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](/calculators/customer-churn-retention-calculator), and for subscription businesses with monthly cohort data, see the [SaaS cohort LTV calculator](/calculators/saas-ltv-cohort-calculator). ## Frequently asked questions ### What is Customer Lifetime Value (LTV)? LTV is the total revenue a business expects to earn from an average customer over the entire time they remain a customer, typically expressed as a discounted, present-day dollar figure. ### How does this calculator compute LTV? It multiplies average order value by purchase frequency for annual value, then projects that value forward 10 years, shrinking each year by your retention rate and discounting it back to today's dollars at your discount rate. ### What is the difference between this calculator and the SaaS cohort LTV calculator? This calculator uses one annual retention rate and a 10-year projection based on revenue. The SaaS cohort LTV calculator uses four monthly retention milestones, a cost-to-serve percentage for gross margin, and a 60-month projection — a more detailed model built for subscription businesses with monthly cohort data. ### Why does retention rate have such a big impact on LTV? Retention compounds every year of the projection — a customer with 75% annual retention has just a 56% chance of still being active in year two, 42% in year three, and so on — so small changes in retention shift a large share of the projected value. ### What discount rate should I use? Use your cost of capital or required rate of return — the same figure you'd use for other net present value calculations. A conservative default is 8-12% for most small and mid-sized businesses; use your actual weighted average cost of capital if you have one calculated. ### Does this calculator account for cost to serve or gross margin? No. This model works from average order value as entered, so the result reflects discounted revenue, not gross profit. If you want a margin-adjusted figure, subtract your cost-to-serve percentage from AOV before entering it, or use the SaaS cohort LTV calculator, which has a dedicated cost-to-serve input. ### Can this model be used for e-commerce or retail businesses, not just subscriptions? Yes — this annual, purchase-frequency-based model fits e-commerce, retail, and other repeat-purchase businesses well, since it does not assume a fixed monthly subscription charge the way the SaaS cohort model does. ### What happens if retention rate is entered as 100%? The calculator caps effective retention just under 100% internally to keep the lifespan and discounting math well-defined, since a literal 100% retention rate would imply an infinite customer lifespan. Treat retention rates above roughly 95% as a sign to sanity-check your data rather than a literal permanent customer. ### How many years does this model project? 10 years. Because future years are both discounted and reduced by cumulative churn, the earliest 3-4 years typically account for the large majority of total discounted LTV. ### How do I compare LTV against customer acquisition cost (CAC)? Divide this calculator's discounted LTV by your CAC from the customer acquisition cost calculator. An LTV:CAC ratio of 3x or higher is a commonly used benchmark for a sustainable acquisition strategy; below that, acquisition spend may not pay back with enough margin for overhead and growth. ## Related concepts - **Customer Lifetime Value (LTV)** — The total discounted revenue a business expects from an average customer over the projected duration of the relationship. - **Retention Rate** — The percentage of customers who remain active and purchasing from one period to the next; its complement is the churn rate. - **Discount Rate** — The rate used to convert future cash flows into today's equivalent value, reflecting the time value of money and cost of capital. ## Related guides - [Profit Margin: Formulas, Examples, and Calculator Guide](https://dothecalculation.com/blog/business/profit-margin-calculation) — Calculate gross, operating, and net profit margins, understand margin versus markup, and use each result to make better pricing and cost decisions. ## Related calculators - [Cohort SaaS LTV Calculator](https://dothecalculation.com/calculators/saas-ltv-cohort-calculator) — Calculate customer lifetime value using cohort-specific retention curves, discount rates, and average monthly subscription price. - [Customer Churn & Retention Calculator](https://dothecalculation.com/calculators/customer-churn-retention-calculator) — Calculate customer churn rate, retention rate, revenue churn rate, and customer lifetime value to understand subscriber loss and growth. - [Customer Acquisition Cost (CAC) & LTV Calculator](https://dothecalculation.com/calculators/customer-acquisition-cost-calculator) — Calculate your customer acquisition cost, lifetime value, LTV to CAC ratio, and CAC payback period to measure marketing efficiency accurately. - [Invoice Factoring Cost Calculator](https://dothecalculation.com/calculators/invoice-factoring-cost-calculator) — Calculate the true cost, APR, and discount rate of factoring invoices to access immediate cash flow instead of waiting on client payments. - [Customer Lifetime Value (CLV) Calculator](https://dothecalculation.com/calculators/customer-lifetime-value-calculator) — Compute customer lifetime value from average purchase value, purchase frequency, and customer lifespan with discount rate adjustments. - [E-commerce Conversion Rate & Cart Abandonment Calculator](https://dothecalculation.com/calculators/ecommerce-conversion-calculator) — Calculate add-to-cart rate, cart abandonment rate, overall conversion rate, and lost revenue projections to optimize your online store. --- _This calculator is for educational and business planning purposes only. LTV projections are estimates based on the retention, order value, and discount rate assumptions you provide and do not constitute financial, tax, or investment advice. Validate assumptions against your own historical cohort data before making budgeting or acquisition-spend decisions._ --- _Source: [Do The Calculation](https://dothecalculation.com/calculators/customer-lifetime-value-detailed-calculator). Quote freely with attribution and a link to this page._