Sales Funnel Customer Lifetime Value Formula
Learn how customer lifetime value, lead value, monthly customers and monthly cohort lifetime revenue are calculated from a sales funnel.
This page explains the formulas behind a sales funnel customer lifetime value calculator. These calculations help estimate how much one customer or lead may be worth and how much long-term revenue a typical month of acquired customers could represent.
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Customer Lifetime Value
Where:
Multiply the average value of one order by how often the average customer buys each year and by how many years the average customer stays active.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| websiteVisitors - Monthly website visitors | The number of visitors entering the funnel in a typical month. | number |
| visitorToLeadRate - Visitor to lead conversion rate | The percentage of visitors who become leads. | percent |
| leadToCustomerRate - Lead to customer conversion rate | The percentage of leads who become paying customers. | percent |
| averageOrderValue - Average order value | The average revenue from one purchase. | currency |
| purchaseFrequencyPerYear - Purchases per customer per year | How many times the average customer buys in one year. | number |
| customerLifespanYears - Average customer lifespan | How long the average customer keeps buying. | years |
| monthlyLeads - Monthly leads | Estimated leads generated from monthly visitors. | number |
| monthlyCustomers - Monthly new customers | Estimated paying customers generated each month. | number |
| customerLifetimeValue - Customer lifetime value | Estimated total revenue from one average customer over their full lifespan. | currency |
| leadValue - Lead value | Estimated revenue value of one lead based on lead-to-customer conversion. | currency |
| monthlyLifetimeRevenue - Monthly cohort lifetime revenue | Estimated lifetime revenue from customers acquired in one month. | currency |
Step-by-Step Calculation
Estimate monthly leads
Convert the visitor-to-lead percentage into a decimal and multiply it by monthly website visitors.
monthlyLeads = websiteVisitors * (visitorToLeadRate / 100)
Estimate monthly new customers
Take the number of monthly leads and apply the lead-to-customer conversion rate.
monthlyCustomers = monthlyLeads * (leadToCustomerRate / 100)
Calculate customer lifetime value
Estimate the total revenue one average customer generates over the full relationship.
customerLifetimeValue = averageOrderValue * purchaseFrequencyPerYear * customerLifespanYears
Calculate lead value
A lead is worth the customer lifetime value multiplied by the chance that a lead converts into a customer.
leadValue = customerLifetimeValue * (leadToCustomerRate / 100)
Calculate monthly cohort lifetime revenue
Multiply the number of new customers acquired in one month by the lifetime value of each customer.
monthlyLifetimeRevenue = monthlyCustomers * customerLifetimeValue
Worked example for a typical online funnel
Monthly leads
10,000 × 5%
500 leads
Monthly new customers
500 × 20%
100 customers
Customer lifetime value
$120 × 4 × 3
$1,440
Lead value
$1,440 × 20%
$288
Monthly cohort lifetime revenue
100 × $1,440
$144,000
Final Result
Estimated customer lifetime value is $1,440 per customer, estimated lead value is $288 per lead, and the monthly acquired customer cohort represents about $144,000 in lifetime revenue.
Assumptions
- ✓Average order value, purchase frequency and customer lifespan are assumed to represent a typical customer.
- ✓Conversion rates are assumed to stay stable over the period being analyzed.
- ✓Customer lifetime value is treated as revenue, not profit or contribution margin.
- ✓Monthly cohort lifetime revenue reflects long-term revenue from one month's acquired customers, not same-month cash flow.
Limitations
- !The formula does not subtract refunds, discounts, payment fees, taxes, marketing spend or operating costs.
- !Results can be misleading if customer behavior varies significantly across segments or channels.
- !Businesses with seasonal traffic or conversion swings may need separate calculations for different periods.
- !Averages can hide differences between first-time buyers, repeat buyers and high-value customers.
Common Mistakes to Avoid
Using total annual revenue per customer as average order value while also entering purchase frequency, which double counts repeat purchases.
Entering percentages as decimals and percentages at the same time, such as typing 0.2 when the field expects 20.
Treating customer lifetime value as profit instead of revenue.
Assuming monthly cohort lifetime revenue is money collected immediately in the same month.
Using visitor or lead data from one channel and order value data from a different customer mix.
Related Formulas
Frequently Asked Questions
What is the formula for customer lifetime value in this calculator?
The calculator uses customer lifetime value = average order value × purchases per customer per year × average customer lifespan in years.
How is lead value calculated from customer lifetime value?
Lead value is estimated as customer lifetime value multiplied by the lead-to-customer conversion rate.
Why are monthly leads calculated before monthly customers?
Because the funnel first turns visitors into leads and then turns a share of those leads into paying customers.
Does this formula calculate profit-based lifetime value?
No. It estimates revenue over the customer relationship unless you replace order value with a profit-based figure outside this calculator.
Can the formula be used for subscription businesses?
Yes. You can use average payment amount as order value and the number of renewals or payments per year as purchase frequency.
Why can a small change in conversion rate affect results so much?
Conversion rates compound through the funnel, so even small percentage changes can materially alter customer counts and revenue estimates.
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