Accounting Customer Lifetime Value (Annual) Calculator
Estimate the lifetime value of an average customer using annual revenue, direct servicing costs, retention rate and acquisition cost.
Overview
This annual customer lifetime value calculator estimates how much contribution an average customer may generate over their expected relationship with your business. Enter annual revenue, direct annual servicing costs, annual retention and customer acquisition cost to calculate an accounting-focused CLV estimate.
How it works
The calculator first finds annual contribution by subtracting direct customer costs from annual revenue. It estimates customer lifetime from the annual churn rate, which is one minus the retention rate. Annual contribution is multiplied by estimated lifetime to produce gross customer lifetime value. Customer acquisition cost is then deducted to show net customer lifetime value. This is a simple steady-state model and does not discount future cash flows.
How to use this calculator
- 1Enter the average annual revenue from one customer.
- 2Add the annual direct cost of serving that customer.
- 3Enter the percentage of customers retained each year.
- 4Enter the average cost to acquire one customer.
- 5Review gross and net lifetime value alongside the LTV to CAC ratio.
Example Calculation
Annual revenue per customer
$12,000
Annual direct cost per customer
$7,000
Annual customer retention rate
85%
Customer acquisition cost
$2,000
Net customer lifetime value
$31,333
With annual contribution of $5,000 and 85% annual retention, estimated customer lifetime is about 6.7 years. Gross lifetime value is about $33,333 and net lifetime value after $2,000 acquisition cost is about $31,333.
Frequently asked questions
What is annual customer lifetime value?
Annual customer lifetime value estimates the total contribution an average customer may generate across their relationship with a business, using yearly revenue, costs and retention.
How is customer lifetime estimated from retention rate?
This calculator estimates expected lifetime as one divided by annual churn. For example, 85% retention means 15% churn, producing an estimated lifetime of about 6.7 years.
Should acquisition cost be included in customer lifetime value?
Including acquisition cost helps show net customer lifetime value, which is the expected customer contribution remaining after the cost of acquiring that customer.
Which costs should be included as direct customer costs?
Use costs that vary with serving the customer, such as fulfilment, support, payment processing, commissions, hosting or materials. Consider overhead separately unless it can be reliably allocated.
What does the LTV to CAC ratio show?
It compares gross customer lifetime value with customer acquisition cost. A higher ratio indicates more expected customer contribution for each unit spent on acquisition, but it should be reviewed with payback period, cash flow and retention trends.
Does this calculator account for discounting future cash flows?
No. It uses a straightforward retention-based estimate and treats future annual contribution as having the same value as current contribution. A discounted cash flow model may be useful for longer customer lifetimes.
Explore Related Calculators
Assumptions and warnings
Assumptions
- Annual revenue and direct costs are assumed to remain broadly consistent over the customer relationship.
- The retention rate is assumed to be stable each year.
- Expected customer lifetime is estimated as one divided by the annual churn rate.
- The calculation excludes the time value of money, taxes, overhead allocation and future changes in pricing or costs.
- Results are planning estimates and depend on the quality of the underlying customer data.
Warnings
- This calculator provides an estimate only and is not accounting, financial or business advice.
- Review actual cohort retention, costs and acquisition spending before making significant budgeting or investment decisions.