What is Customer Lifetime Value (CLV)?
Customer Lifetime Value (also called LTV or CLTV) is a prediction of the total revenue a business can expect from a single customer account throughout the entire business relationship. It helps businesses understand how much they should invest in acquiring and retaining customers.
The CLV Formula
Basic CLV = Average Purchase Value x Purchase Frequency x Customer Lifespan
For profit-based CLV, multiply by profit margin.
Why CLV Matters
- Marketing Budget: Determines how much to spend acquiring customers
- Customer Segmentation: Identify your most valuable customers
- Business Valuation: CLV is a key metric for investors
- Retention Focus: Highlights the value of keeping customers
How to Use This Calculator
- Enter the average amount a customer spends per transaction
- Enter how many times a customer purchases per year
- Enter the average number of years a customer stays with you
- Optionally add profit margin for profit-based CLV
- Add customer acquisition cost to see net CLV
- Add discount rate for present value calculation
CLV to CAC Ratio
The CLV:CAC ratio shows the relationship between customer lifetime value and acquisition cost. A healthy ratio is typically 3:1 or higher, meaning you earn $3 for every $1 spent acquiring customers.
Ways to Improve CLV
- Increase average order value through upselling
- Improve purchase frequency with engagement
- Extend customer lifespan through retention programs
- Improve profit margins through operational efficiency
- Reduce customer acquisition costs
