Accounting Customer Lifetime Value Calculator
Estimate the discounted gross profit a customer is expected to generate over time, including retention, acquisition cost and discount rate.
Overview
Use this Accounting Customer Lifetime Value Calculator to estimate the present value of gross profit expected from a typical customer. Enter annual revenue, gross margin, customer retention, a discount rate, an analysis period and acquisition cost to assess customer economics.
How it works
The calculator first converts annual revenue into annual gross profit by applying the gross margin. It then estimates each future year's expected gross profit by applying the annual retention rate and discounts that amount back to today's value using the discount rate. The discounted gross-profit amounts over the selected period are combined to produce gross customer lifetime value. Customer acquisition cost is then deducted to show net customer lifetime value.
How to use this calculator
- 1Enter the average annual revenue from one active customer.
- 2Add the gross margin after direct costs of delivery.
- 3Enter the expected annual customer retention rate.
- 4Choose a discount rate and analysis period.
- 5Enter the average cost to acquire one customer.
- 6Review the gross and net customer lifetime value estimates.
Example Calculation
Annual revenue per customer
$1,200
Gross margin
60%
Annual customer retention rate
85%
Annual discount rate
10%
Analysis period
5
Customer acquisition cost
$300
Net customer lifetime value
$1,474
With annual revenue of $1,200, a 60% gross margin, 85% annual retention, a 10% discount rate and a five-year period, discounted gross lifetime value is about $1,774. After a $300 acquisition cost, net customer lifetime value is about $1,474.
Frequently asked questions
What is customer lifetime value in accounting?
Customer lifetime value is an estimate of the economic value a typical customer generates over the relationship. This calculator uses gross profit rather than revenue and discounts future value to present value.
Why does this calculator use gross margin instead of revenue?
Revenue alone does not show the contribution available after direct delivery costs. Applying gross margin provides a more useful estimate of the gross profit generated by the customer.
What does the discount rate do?
The discount rate reduces the present value assigned to future gross profit. A higher rate gives less weight to cash flows expected further in the future.
How does retention affect customer lifetime value?
Higher retention means a customer is more likely to remain active in later years, increasing the expected future gross profit and lifetime value.
Does the result include customer acquisition cost?
The discounted gross lifetime value is shown before acquisition cost. The net customer lifetime value subtracts the acquisition cost you enter.
Should fixed overhead be included in gross margin?
Gross margin usually reflects revenue less direct costs of serving customers. Whether fixed overhead is included depends on your reporting approach, so use a margin consistent with the decision you are evaluating.
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Assumptions and warnings
Assumptions
- Customer revenue and gross margin are assumed to remain constant during the analysis period.
- The retention rate is applied once per year, so the calculation is most suitable for annual planning assumptions.
- Future gross profit is discounted at the annual rate entered by the user.
- Customer acquisition cost is treated as an upfront cost and is deducted once.
- The result is an estimate and does not include fixed overhead, taxes, financing costs, refunds, or expansion revenue unless reflected in the inputs.
Warnings
- This calculator provides an estimate only and is not financial or accounting advice.
- Review the assumptions and use your own accounting policies and current business data when making decisions.