Customer Lifetime Value (CLV)

By /

Customer Lifetime Value is a prediction of the total profit a business can expect to earn from a single customer over the entire duration of their relationship.

Formula

There are several variations depending on how detailed you want to get, but a simplified version is:

CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan

Or if you’re working with gross profit:

CLV = (Average Order Value × Number of Orders per Year × Customer Lifespan in Years) × Gross Margin

Example:

Let’s say a customer:

  • Spends $60 per order
  • Buys from you 6 times a year
  • Remains a customer for 3 years
  • And your gross margin is 40%

Then:

CLV = ($60 × 6 × 3) × 0.4 = $432

Why It Matters

  • Helps set realistic marketing budgets (you can spend more to acquire high-LTV customers)
  • Encourages customer retention, which is often cheaper than acquisition
  • Reveals which customers bring the most long-term value, not just one-time purchases
Scroll to Top