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Customer lifetime value: estimate gross profit, not just sales

Published by Navon Ventures S.A.S · October 27, 2026

This customer lifetime value model estimates gross profit from a hypothetical repeat-purchase pattern. It multiplies a stable average order amount by annual purchase frequency and duration, then applies a gross margin. The result is a scenario rather than a prediction for any particular customer.

Which inputs to use

Average order value

Use sales per order for the group being modeled, consistently treating refunds and taxes.

Orders per year

Enter annual frequency, not total orders over the entire lifetime.

Customer lifetime

Use years compatible with the annual frequency.

Gross margin

Enter the share of revenue remaining after the costs in your gross-margin definition.

Formula and worked example

Order value × annual orders × years × margin ÷ 100

A $100 order amount, four orders per year, three years and a 40% gross margin give 100 × 4 × 3 × 0.40 = $480. Sales total $1,200, while modeled gross profit is $480. Calling the $1,200 figure profit ignores the margin input.

Common interpretation mistakes

Increasing assumed lifetime increases the answer even without evidence that customers remain active that long. Averages can hide very different customer groups. Review separate cohorts where possible, and avoid mixing a margin from one product group with purchase behavior from another. Check units before treating frequency and duration as compatible.

Assumptions and limits

The model has no retention curve, discounting or changing order pattern. It excludes acquisition cost and overhead outside the selected gross-margin definition. Align customer and cost definitions before comparison with CAC. The result is not net cash available today or a guaranteed allowance for future acquisition spending.

You can also explore Customer acquisition cost.