Customer lifetime value (CLV) is how much a customer is worth to your business over the whole relationship. The simplest formula is average order value x purchase frequency x average customer lifespan, but that gives you revenue, not profit, so multiply by your gross margin before you decide what a customer is worth.
You'll also see it written as CLTV or LTV. Shopify describes it as what a customer is worth over the entire relationship, and Stripe goes a step further, describing it as a way to predict how much net profit a customer will generate and to spot your most valuable customers. That gap between revenue and profit is the thing most CLV calculations quietly ignore.
The revenue-based CLV formula
Shopify's basic formula multiplies three numbers: average order value, purchase frequency and average customer lifespan. Stripe's version is the same idea in different words: average transaction value x average number of transactions x customer lifespan. These are their illustrative examples, in US dollars, as of October 2026:
| Example | Order value | Purchases a year | Lifespan | Revenue CLV |
|---|---|---|---|---|
| Clothing store (Shopify) | $50 | 3 | 2 years | $300 |
| Coffee retailer (Shopify) | $30 | 12 | 3 years | $1,080 |
| Stripe's example | $100 | 2 | 5 years | $1,000 |
The coffee example is the interesting one. Its orders are smaller, but frequency and lifespan carry it well past the clothing store. Big baskets aren't everything.
Margin-adjusted CLV: the profit view
Every number in that table is revenue. To see profit, Shopify multiplies revenue CLV by gross margin, written as a decimal. With a hypothetical 60% gross margin, the clothing store's $300 becomes $180. Shopify is careful to say that $180 is gross profit before acquisition costs and other operating expenses, so it's still not the full picture.
| Same clothing store | Figure | What it counts |
|---|---|---|
| Revenue CLV | $300 | Everything the customer spends over two years |
| Margin-adjusted CLV (hypothetical 60% gross margin) | $180 | Gross profit, before acquisition and operating costs |
Stripe makes the same point from another angle. It says CLV is most accurate when it accounts for the cost of goods sold, and that with thin margins a high-revenue customer can be worth less than a lower-revenue customer who buys higher-margin products. Keep the two versions apart in your reports and always label which one you're using.
CLV for subscription businesses
If you sell subscriptions, Shopify gives a different formula: average monthly recurring revenue per customer x gross margin, divided by the monthly customer churn rate. It assumes revenue, margin and churn stay stable, and it doesn't discount future earnings, so treat the answer as a rough guide.
How to calculate your customer lifetime value
- Work out average order value: total revenue divided by the number of orders.
- Work out how many purchases each customer makes a year.
- Estimate lifespan from customers who've been with you long enough to tell.
- Multiply the three together for revenue CLV.
- Multiply that by gross margin for the margin-adjusted, profit view.
- Compare the result with what it cost to acquire the customer.
Shopify adds two rules worth following: compare customer groups at the same age, such as their first year after purchase, and use the same definitions of revenue and cost every time. Once you want more than the basic formula, Stripe lists five ways to measure CLV: historical, cohort analysis, predictive, retention-based and RFM, which stands for recency, frequency and monetary value: how recently a customer bought, how often they buy and how much they spend.
Purchase frequency is the part of the formula a store can move most easily, and our list of loyalty apps for Shopify shows how stores nudge it up.
CLV vs customer acquisition cost: the 3:1 rule
CLV means little on its own. You need to set it against customer acquisition cost (CAC). Stripe calls CAC being lower than CLV a key indicator of profitability. Shopify says a 3:1 LTV to CAC ratio is the usual benchmark, but that the right target depends on your margins and operating costs. Using revenue CLV, 3:1 means $3 of lifetime revenue for every $1 you spend acquiring a customer, which can still leave you short if your margins are thin.
Plenty of small stores never get that far. Shopify's Q4 2025 survey of 500 store owners found 30% of those with more than $1 million in revenue track customer acquisition cost, against 5% of those under $100,000.
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The levers are the ones Stripe lists: average order value, purchase frequency, customer lifespan, churn rate, gross margin and CAC. Stripe notes that even a small reduction in churn compounds over time. If keeping customers longer is your weak spot, start with this guide to using AI for customer retention and this customer retention guide.
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My verdict on customer lifetime value
Revenue CLV flatters you. It's the figure people like to quote because it's the bigger one, but it's the margin-adjusted version that tells you what you can afford to spend to win a customer. Work out both, label them clearly, and set them against CAC. If you only track a handful of figures, put these on the list alongside the ones in my guide to marketing metrics that matter for small businesses.
Frequently asked questions
What is the formula for customer lifetime value?
The basic formula is average order value x purchase frequency x average customer lifespan. That gives revenue CLV. Multiply by gross margin for a profit view.
Are CLV, CLTV and LTV the same thing?
Yes. They're three names for the same measure of what a customer is worth over the whole relationship, so check which formula sits behind the figure rather than the label.
Is CLV revenue or profit?
It can be either, which is why you should label it. The basic formula gives revenue, while Shopify's margin-adjusted version multiplies by gross margin to show gross profit before acquisition and operating costs.
What is a good LTV to CAC ratio?
Shopify says 3:1 is the usual benchmark, but the right target depends on your margins and operating costs.
How do you calculate CLV for a subscription business?
Shopify's formula is average monthly recurring revenue per customer x gross margin, divided by the monthly customer churn rate.
