How it is calculated
Lifetime revenue = average order value times orders a year times years. Lifetime gross profit = that revenue times the gross margin. A common target is to spend at most a third of it to win the customer.
Lifetime revenue is what one customer spends with you over the whole time they keep buying: the average order, times the orders they place a year, times the years they stay.
Lifetime gross profit keeps the part of that revenue left after the cost of the goods, which is what the gross margin measures. It is the figure to compare with what a customer costs you to win.
A common rule of thumb keeps lifetime value at three times the cost of winning a customer, so the calculator shows a third of the lifetime gross profit as the most to spend on it. A store that needs its money back sooner can aim lower.
A worked example
These are the numbers the calculator opens with, so you can follow each step in the form above.
- A customer's average order is €55.00. They order 2.4 times a year and keep buying for 2 years, and the gross margin is 60%.
- Lifetime revenue: €55.00 times 2.4 times 2 is €264.00.
- Lifetime gross profit: 60% of €264.00 is €158.40.
- Most to spend to win a customer: a third of €158.40 is €52.80.
Terms used: Customer lifetime value (CLV), AOV (average order value), CAC (customer acquisition cost), Gross margin.
Repeat orders are what make a customer worth more over time, and email is one of the main ways stores ask for them. The email marketing library shows the welcome, newsletter and abandoned cart emails other brands send.
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