Customer Lifetime Value Calculator

How much is that customer really worth?

This is a companion resource to Retention First: Grow Your Business by KEEPING the Customers You Already Have, by John Lamerton.

Imagine knowing that every new customer you bring in is worth £1,000… or £5,000… or £50,000 to your business over time.

Would you treat them differently?

Would you serve them differently?

Would you spend more to win the right ones?

This is why understanding your Lifetime Value (LTV) matters. It tells you how much a typical customer (and more importantly, your best customers) are really worth  – not just today, but over the long haul.

Once you know your LTV, you can make better decisions about:

• How much to spend to win a new customer.
• The quality of new customers you want to attract – and those you may want to repel.
• Where to focus your time and energy.
• How and where to invest in retention.

So how do you work out your LTV? Let’s break it down – nice and simple.

1️⃣ Step 1: Determine Your Gross Lifetime Value

Let’s start with some really basic maths (don’t worry – I will keep this super-simple!). 

How much revenue has your business made in total – all time? How many (unique) paying customers have you had in that time? These are the only two numbers you’ll need to work out your gross Lifetime Value (LTV).

Gross LTV Formula: Total Revenue ÷ Total Customers

Example:

• Total Revenue (all time): £500,000

• Total Number of Customers: 250

• Gross Lifetime Value (LTV) = £500,000 ÷ 250 = £2,000

2️⃣ Step 2: Adjust for Your Profit Margin

If a customer pays you £2,000, but £1,200 of that goes on costs (suppliers, materials, postage, team wages), your actual profit from them is only £800.

If you’re using LTV to make spending decisions (like whether you can afford to invest £500 to acquire a customer), use this adjusted-for-profit Net LTV figure. (Just like fishing, what’s left in the net is what you get to keep!)

You don’t need to be exact. It’s better to use a rough-but-realistic number than a precise-but-meaningless one.

Net LTV Formula: Gross LTV × Profit Margin

Example:

If your profit margin is 40%, then:

Net LTV = £2,000 × 0.40 = £800

✅ Quick Recap

• Gross LTV = Total Revenue ÷ Total Customers
• Net LTV  = Gross LTV × Profit Margin

Frequently Asked Questions…

Q: What if I don’t have my all-time revenue/customer figures?
A: Whatever data you have to hand will give you an insight. For example, if you know that last year, you collected £100,000 from 200 customers, then you know that your average annual spend was £500 per customer. If you know that customers stay for 3 years on average, then you could multiply £500 x 3 years to give you a Gross LTV of £1,500.

Q: Do I have to adjust for profit margins? Can’t I just use Gross LTV?
A: Simply using Gross LTV will put you ahead of most small business owners. Net LTV provides a clearer picture for financial decisions, especially if your profit margins vary. But Gross LTV is simpler and useful for general insights. It’s better to use a rough-but-realistic number than a precise-yet-meaningless one.

Q: Where can I find my profit margin?
A: Your accountant should be able to provide this for you. For the benefit of stability, I would advise using full-year figures, rather than monthly or quarterly ones which can vary wildly.

Q: Should I use net profit margin, or gross?
A: It depends on what you’re using your LTV number for. Gross profit is what’s left after covering the direct costs of delivering your product or service (like materials, postage, or freelancer time). Net profit takes into account everything else it costs to run your business (like rent, software, or salaries). A good rule of thumb: If your overheads stay fixed as you grow, gross profit works fine, while if you want to reinvest in retention and customer experience, use net profit.

Q: How often should I calculate LTV?
A: Regularly reviewing LTV, such as quarterly or annually, helps track changes over time and assess the impact of your retention strategies. Personally, I update my Gross LTV monthly, and my Net LTV annually.

Q: Can LTV vary between customer segments?
A: Absolutely. Sometimes, a one-size-fits-all LTV number doesn’t tell the full story. If you have lots of one-time buyers (who spend £100), and a smaller group of long-term clients (who spend £5,000+), then your “average” LTV might land at £500 – which isn’t helpful for making decisions about either group. So break it down by customer type:

1. New customers (e.g. joined in the last year)
2. Established customers (e.g. 1-3 years with you, top 50% of net spend)
3. Loyal/High Value customers (3+ years, top 10% of net spend)

Then, calculate the LTV for each group separately. You might discover that your loyal customers are worth 10x more – suddenly, it makes sense to pour more into keeping them.  You can also group by product, service line, or sales channel – whatever helps you make better decisions.

Q: What else could you use LTV for?
A: You could work out LTV-per-source. For example, you may discover that a customer acquired through Facebook Ads’ LTV is £370, while Google Ads’ LTV is £560, and a referred customers’ LTV is £700. Or you could track the LTV of customers acquired through different marketing campaigns: comparing those who joined in your summer campaign against the Black Friday buyers from last year. This tells you how customer value changes over time – and whether certain acquisition methods lead to better customers.

Q: What is a “good” LTV?
A: It’s entirely subjective, and completely individual to your business. I’ve been very happy (and successfully scaled a business to a healthy six-figure profit) on a £22.50 LTV. But in another business, anything less than £1,750 is unacceptable. If you’re using LTV to guide your marketing or acquisition budget, a good rule of thumb is that your LTV should be many, many times higher than the cost of acquiring a new customer. Dan Kennedy famously said: “He or she who can afford to spend the most to acquire a new customer, wins.” A Retention First business increases LTV – then uses that to buy better customers, not just cheaper ones.

Final Thought: Keep it Simple, Use it Often.

Whether you use Gross or Net, LTV doesn’t need to be perfect. It needs to be directionally useful.

Even a rough estimate can unlock smarter decisions, bigger margins, and a whole new way of looking at customer value.

Once you know your LTV, you’ll start seeing your business differently. Because when you truly value your customers – in numbers, not just words – you’ll start building a business that keeps them for life.

Grow your customers’ Lifetime Value (and your business), with the help of a FREE chapter from my book Retention First.

There is no better way to grow your business and your profits than by keeping – and obsessing over – the customers you’ve ALREADY got.

If you can increase retention by as little as 5%, your profits could grow by as much as 95%.

Most small businesses chase strangers. Ads, funnels, lead magnets, networking breakfasts – they’re all just pouring more water into a leaky bucket. Put retention last, and you’ll feel knackered, always chasing the next deal, feeling like your business is running you, not the other way round.

Retention First helps you stop treating retention as an afterthought, and start putting it first in your business by looking after – and obsessing over – the customers you’ve already got before chasing new ones who have yet to spend a penny with you.

IN RETENTION FIRST YOU’LL LEARN:

• The six reasons most businesses lose customers – and how to fix each one.
• Why “customer loyalty schemes” don’t work – and what to do instead.
• How to win back “lost” customers.
• Why Lifetime Value is the most important metric you’ll ever measure.
• The subtle art of genuinely giving a sh*t about your customers – at scale.
• Why your customers WANT you to be making an absolute fortune.
• What “Retention Momentum” is – and why it’s your secret growth weapon.
• The power of “Existing Customer Only” offers.
• Why we ALL work in the Retention Department.
• How to sack problem clients – and replace them with better ones.

Read this book if you’re fed up with constantly refilling a leaky bucket with new customers, who have zero loyalty to you.

Click here to get a FREE chapter of Retention First.