LTV:CAC calculator: what can you pay for a customer?

LTV is what a customer is worth to you over time, and here that means the gross profit from their first 12 months. CAC is what it costs you to win them. Put the two side by side and you can see how much room you have to spend on growth.

LTV:CAC calculator

Put in your own figures. Any currency works, as long as you use the same one in every box.

Why we start from profit

Many lifetime value figures in a dashboard are revenue, and revenue overstates what you can spend. A $100 order at a 40% margin leaves $40 to pay for the customer, your team and your own profit.

So we start from order values after discounts and take out product cost, shipping and payment fees. What’s left is the gross profit per order, and that’s the figure the calculator uses. If you don’t have it to the dollar, a rough margin is a far better starting point than revenue.

Why 12 months

Nobody knows what a customer will do in year four, so we stop at 12 months. Twelve months is often long enough to catch the second and third orders for a consumable product, and short enough that you can check it against what your customers did.

It also matches how cash works. A customer’s order in month eleven can pay back an ad you ran this month, so it’s money you can plan around.

How to find orders per customer

Pick the customers who placed their first order between 12 and 24 months ago, so every one of them has had a full year. Count the orders each of them placed in the 12 months from that first order, then take the average. That’s the third box in the calculator.

In Shopify, the customer cohort analysis report (under Analytics, then Reports, depending on your plan) shows how many customers came back month by month, which gets you close. An export of orders with customer IDs gets you the exact figure in a spreadsheet. If the store is under a year old, use the months you have and treat the answer as a floor.

What the number does to your ads

The ceiling is the most you can pay to win a customer while keeping the share of profit you chose. A store that counts the full 12 months of orders has a higher ceiling than one that counts only the first order, so it can afford to bid more on Meta and Google.

It also tells you what to watch. If your cost per new customer is creeping towards the ceiling, either acquisition is getting more expensive or customers are worth less than they were, and the fix is different for each.

How to raise the ceiling

Order value and margin both count. For consumable products, orders per customer is often the number with the most room to move, and it’s the one email and SMS change. The last line of the calculator shows what one extra order a year does to what you can pay. The extra orders tend to come from a handful of places:

• A welcome series that keeps going after the first order and asks for the second
• Post-purchase emails that help the product get used, so it runs out and gets reordered
• Replenishment reminders timed from your own reorder data, which our replenishment timing guide walks through
• Getting into the inbox at all, covered in why Klaviyo emails land in Promotions or spam
• Campaigns sent to the segments they suit, so the list keeps opening

Before they start with us, the businesses we work with get 10% to 17% of their revenue from email and SMS. Across our clients, the average is 40%. Our wellness case study shows what that rebuild looked like for one brand.

If your numbers are messy

Plenty of stores don’t have clean margin or cohort figures, and that’s what our LTV:CAC Gameplan call is for. Bring whatever you have, even rough numbers, and we’ll work out your ceiling with you, show you where the gap between what a customer costs and what they’re worth is widest, and give you the three changes we’d make first. Book an LTV:CAC Gameplan.