Customer lifetime value (CLV) calculator with discounted cash flow
Calculate revenue CLV, profit CLV, and discounted CLV (the actually-correct version using present value math). Get maximum acceptable CAC for healthy unit economics.
Inputs
Results
How to read this calculation
Annual Revenue per Customer = Average Purchase Value × Purchases per Year
Revenue CLV = Annual Revenue × Customer Tenure (years)
Annual Profit = Annual Revenue × Gross Margin %
Profit CLV (undiscounted) = Annual Profit × Customer Tenure
Discounted CLV (NPV) = Σ (Annual Profit ÷ (1 + Discount Rate)^t)
for t = 1 to Customer Tenure
Max Acceptable CAC = Discounted CLV ÷ 3 (for 3:1 LTV:CAC target)
CLV (customer lifetime value) is the total profit a customer generates over their entire relationship with your business. It's the most important number for setting maximum acceptable CAC (customer acquisition cost), evaluating acquisition channels, and understanding the long-term economics of your customer base. The standard rule: keep CAC below 1/3 of CLV to maintain healthy unit economics.
Discount the future cash flows. A dollar of customer profit 5 years from now is worth less than a dollar today because of the time value of money. Discounted CLV uses your cost of capital (typically 10-15%) to present-value future profits. Operators who use undiscounted CLV for CAC decisions consistently overspend on acquisition because future dollars don't have today's purchasing power.
The biggest CLV lever is retention, not acquisition. A business with 3-year average customer tenure that extends to 5 years sees CLV increase 67%. The same increase from acquiring more profitable customers requires either much higher pricing or much higher purchase frequency. Operators looking to grow CLV systematically should focus on retention first, expansion revenue second, pricing third.
Frequently asked questions
The questions operators most commonly ask about customer lifetime value.
Why should I discount future customer profit?
Because a dollar of customer profit five years from now is worth less than a dollar today. Money has time value — capital earns return, inflation erodes purchasing power, and future profits face execution risk. Using your cost of capital (typically 10-15%) to discount future cash flows gives you present-value CLV. Undiscounted CLV systematically overstates customer value and leads to overspending on acquisition.
Should I use revenue CLV or profit CLV?
Profit CLV, always. Revenue CLV ignores delivery costs and overstates actual customer value. A customer generating $1,000 in lifetime revenue at 60% gross margin only delivers $600 in contribution — that's what's available to cover acquisition cost and generate profit. Revenue-based CLV is the most common SaaS metric error and consistently leads to over-investment in acquisition.
How do I figure out customer tenure?
Two methods. Method 1: track real cohorts and measure how long they stay before churning (most accurate but requires 2-3 years of data). Method 2: calculate as 1 ÷ annual churn rate. 20% annual churn = 5 years tenure. 33% annual churn = 3 years. Method 2 is reasonable for steady-state businesses but understates tenure if retention is improving, overstates it if deteriorating.
What's a good CLV:CAC ratio?
3:1 is the standard target. Below 3:1 indicates marginal economics; 3-5:1 is healthy; 5-10:1 is strong (consider whether you could acquire faster); above 10:1 typically means you're under-investing in growth. The optimal ratio depends on your cost of capital, growth ambitions, and competitive dynamics. Lower ratios make sense for capital-rich businesses chasing market share; higher ratios make sense for capital-constrained businesses prioritizing profitability.
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