Customer Lifetime Value

How CLV and the ratio are calculated

Every figure comes from your own five inputs — this tool uses no benchmark data beyond the 3:1 rule of thumb noted above. The formulas, exactly as computed:

1. Customer lifetime value — average order value × purchase frequency per year × customer lifespan in years. This is gross lifetime revenue per customer.
2. Margin-adjusted CLV — the CLV multiplied by your gross margin. This is the profit a customer actually contributes, and it is the number the ratio uses.
3. CLV:CAC ratio and max safe CAC — margin-adjusted CLV divided by your acquisition cost; the max safe CAC is margin-adjusted CLV ÷ 3, i.e. the most you could pay per customer while holding the 3:1 rule-of-thumb target.

Worked example (the tool’s defaults): ₹3,500 order value × 4 purchases/year × 3 years = ₹42,000 CLV; at 40% margin that’s ₹16,800 profit → against a ₹2,500 CAC the ratio is 6.7x, with a max safe CAC of ₹5,600 at the 3:1 target.

How to interpret your results

The gauge bands carry over from the original tool: 3x and above is healthy, 1–3x is acceptable but thin, and below 1x means each customer costs more to acquire than they ever return. A thin ratio is usually improved fastest on the retention side — lifting purchase frequency or lifespan compounds through the whole formula, while cutting CAC has a hard floor. If most of your value arrives in year two or three, make sure your cash flow can carry the acquisition cost that long before scaling spend. Once you know your ratio, cross-check it against the return your ads must clear with the Break-Even ROAS Calculator.