Step 1: Gather 3 Numbers

1. Average Order Value (AOV): Total revenue ÷ # of orders

   • Example: $10,000 ÷ 200 orders = $50 AOV

2. Purchase Frequency (PF): # of orders ÷ # of unique customers

   • Example: 200 orders ÷ 80 customers = 2.5 PF/year

3. Average Customer Lifespan (ACL): How long they stay active

   • Estimate: 1-3 years for most small businesses

Step 2: Plug Into the Formula

LTV = AOV × PF × ACL

Example: $50 × 2.5 × 2 years = $250 LTV

Step 3: Refine with Gross Margin

Multiply by your profit margin (e.g., 30%):

Adjusted LTV = $250 × 0.30 = **$75 profit per customer**

3 Real-World Examples

Why This Matters

1. Budget Smarter: Spend <30% of LTV to acquire customers (e.g., max $22.50 for the $75 LTV example).

2. Spot Weaknesses: Low PF? Boost retention. Low ACL? Improve onboarding.

Next Step: Calculate your LTV now—it takes literally 60 seconds.