How to calculate customer lifetime value (LTV) for ad spend decisions

LTV (customer lifetime value) is the number that should drive every ad budget decision. If you know a customer is worth £500 over their lifetime, spending £100 to acquire them is a no-brainer. But if you don't know your LTV, you're guessing — and most UK businesses guess wrong.

The simple LTV formula

LTV = Average order value × Purchase frequency × Customer lifespan × Gross margin. Example: if your average order is £50, customers buy 4 times a year, they stay for 2 years, and your margin is 60%: LTV = £50 × 4 × 2 × 0.60 = £240.

Why most businesses underestimate LTV

Most businesses calculate LTV using only the first purchase. They look at a £30 first order and set their maximum CPA at £15 — but if that customer returns 3 more times over a year, the true LTV is £120. Underestimating LTV means you under-invest in acquisition and leave growth on the table.

How LTV changes your ad strategy

If your LTV is £240 and you target a 3x ROAS, your max CPA is £80 — not £15. That means you can afford to bid on more competitive keywords, run broader Meta audiences, and test new platforms. Businesses that know their LTV outgrow those that don't because they can confidently spend more to acquire a customer.

LTV-to-CAC ratio

The LTV:CAC (customer acquisition cost) ratio is the golden metric for ad efficiency. A 3:1 ratio is healthy — for every £1 you spend on ads, you get £3 back in lifetime value. Below 2:1, you're spending too much to acquire. Above 5:1, you're under-investing and leaving growth on the table. Aim for 3:1 to 4:1.

Bringing it together

You can't calculate LTV:CAC without tracking ad spend and revenue across every platform in one place. AdPulse shows total spend, ROAS and CPA across all your channels — so you can see whether your acquisition cost is in line with your lifetime value. Start free.