Customer lifetime value, also called CLV or LTV, is the total a customer spends with a brand over the whole relationship. LTV:CAC compares that value with what it cost to acquire the customer. For an ecommerce brand, the useful version is calculated on margin, not revenue, for each group of customers who first bought in the same month, and for each channel that brought them in. That is what tells a brand how much it can afford to pay for a new customer and which channels are worth more spend. This answer sets out the formulas, what a good LTV:CAC ratio looks like and what it takes to build the numbers in a data warehouse. It is from Brand Media Works, an AI consulting and marketing data engineering firm for ecommerce brands.

How do you calculate the LTV of a customer?

Shopify gives the basic formula as average order value times annual purchase frequency times average customer lifespan in years (read 3 November 2026):

  • Average order value: total revenue divided by the number of orders.
  • Purchase frequency: orders in the year divided by the unique customers who bought that year.
  • Customer lifespan: the average length of time customers keep buying.

Shopify's own examples: a clothing store with a $50 average order, 3 orders a year and a 2-year lifespan has an LTV of $300. A coffee retailer with a $30 average order, 12 orders a year and a 3-year lifespan has an LTV of $1,080.

Revenue LTV overstates what a customer is worth. Shopify's margin-adjusted version multiplies by gross margin, so the clothing store at a 60% margin has a margin LTV of $180. For comparing with CAC, go one step further and use the contribution margin before marketing, after product cost, shipping, payment fees and returns. MER, ROAS and contribution margin shows how to calculate it.

What does it take to measure LTV and LTV:CAC by channel, and when is a warehouse worth building?

There are three routes, at published terms (read 3 November 2026):

  • Shopify's built-in reports. The customer cohort analysis report groups customers by the month of their first order and shows repeat purchases, average order value, orders per customer and the top marketing channels for each cohort. Its projections of future spend per customer use the store's previous 24 months of data, and the option does not appear without 24 months. Shopify notes that projections are not a guarantee of future sales.
  • Klaviyo's predicted CLV. Klaviyo builds a CLV model from the brand's own data and retrains it at least once a week. Predictions appear only when at least 500 customers have placed an order, the account has at least 180 days of order history with orders in the last 30 days, and some customers have placed 3 or more orders. Predicted CLV covers one year by default, and Klaviyo says predictions work best averaged over many customers.
  • An LTV app. Lifetimely, which tracks CAC, LTV and CAC payback by cohort, has a free plan and paid plans at $49 a month for up to 500 orders, $149 for up to 3,000 and $299 for up to 7,000, plus $75 a month to add Amazon data. It is rated 4.9 from 590 reviews on the Shopify App Store.

These cover a single Shopify store well. A warehouse is worth building when the brand also sells on Amazon, wholesale or in stores, when LTV has to use real contribution margin rather than revenue or a flat gross margin, or when CAC has to match the spend and attribution the media team already uses. It also lets the same customer table feed marketing mix modeling and incrementality tests. The parts are inexpensive at published prices: Fivetran's Free plan covers 500,000 monthly active rows, BigQuery's first 1 TiB of queries each month is free (read 18 October 2026), and one data consultancy publishes about $4,000 for custom pipelines from one or two sources with automated refresh (read 25 October 2026). Marketing data engineering describes how Brand Media Works builds these models, and how to build a marketing data warehouse covers the foundation.

What is a good LTV to CAC ratio?

Shopify calls 3:1 the benchmark, but says the target depends on margins and operating costs. On revenue LTV, 3:1 means $3 of lifetime revenue for every $1 spent acquiring a customer. Whether that makes money depends on margin (our arithmetic):

  • A brand that keeps 45 cents of each sales dollar before marketing turns a 3:1 revenue ratio into $1.35 of contribution for each $1 of CAC.
  • A brand that keeps 25 cents turns the same 3:1 into $0.75, so every new customer loses money.
  • The revenue ratio needed just to recover CAC is 1 divided by the margin: 2.2 at 45%, 4.0 at 25%.

Timing matters as much as the ratio. Shopify advises checking how quickly purchases repay CAC, because projected lifetime earnings do not pay today's bills. A brand with tight cash may want CAC repaid from contribution within the first few months, even if the lifetime ratio looks strong.

How do you build cohort LTV in a warehouse?

  1. One row per customer with the date and channel of their first order, matched across the store, Amazon and any other channel by email or customer ID.
  2. One row per order with revenue net of refunds and cancellations, plus product cost, shipping, payment fees and returns, so each order has a contribution margin.
  3. Cohorts by first order month, with cumulative contribution per customer at month 1, 3, 6 and 12. Shopify advises comparing customer groups at the same age and with consistent definitions of revenue and cost.
  4. CAC by cohort and channel: acquisition spend for the month divided by new customers. Decide up front whether channel CAC uses platform attribution, a model or test results, and keep it the same over time.
  5. Payback: the month in which cumulative contribution passes CAC for each cohort and channel.

The result is a table the finance and media teams can both read: for customers acquired in each month through each channel, what they cost, what they have returned so far and when they paid back.

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Frequently asked questions

What is the difference between CLV and LTV?

None. Shopify notes that customer lifetime value is also called CLTV or lifetime value, and that LTV is the abbreviation most often paired with CAC.

How many customers do I need for predicted LTV?

For Klaviyo's predicted CLV, at least 500 customers with valid orders, 180 days of order history and some customers with 3 or more orders. Shopify's cohort projections need 24 months of store data.

Should LTV include the first order?

Yes, for comparing with CAC, because the first order is part of what the acquisition spend bought. Report first-order contribution separately as well, since it shows how much of CAC is recovered on day one.