What Is Customer Lifetime Value?
What is customer lifetime value (CLV) and how is it calculated?
Customer lifetime value (CLV) is a metric that estimates the total revenue a business can expect from a customer over the entire duration of their relationship. It helps businesses understand the long-term value of acquiring and retaining customers.
In simple terms: CLV tells you how much a customer is worth to your business over time, beyond just a single purchase.
The basic formula for CLV is:
CLV = Average Order Value × Purchase Frequency × Customer Lifespan
- Average Order Value (AOV) = Total revenue / Total orders
- Purchase Frequency (PF) = Total orders / Total customers
- Customer Lifespan (CL) = Average years a customer stays active
Why is CLV a critical metric for business growth and profitability?
CLV helps businesses understand customer profitability, optimize marketing spend, improve retention, and focus on high-value customers, driving sustainable growth and long-term revenue.
- Customer retention vs. acquisition – Helps determine if focusing on retention is more profitable than acquiring new customers.
- Better marketing budget allocation – Businesses can spend more on acquiring high-value customers.
- Personalized customer engagement – Identify VIP customers and offer loyalty-driven promotions.
- Profitability insights – Helps calculate customer acquisition cost (CAC) and ensure CLV > CAC for sustainable growth.
How can businesses increase their CLV?
Increasing customer lifetime value (CLV) means getting customers to spend more, shop more often, and stay loyal longer. Below are proven strategies to maximize CLV and boost long-term revenue.
- Improve customer retention – Offer loyalty programs, exclusive discounts, or VIP rewards.
- Encourage repeat purchases – Use email marketing & personalized product recommendations.
- Increase average order value (AOV) – Offer bundles, upsells, or free shipping over a certain threshold.
- Enhance customer experience – Faster shipping, better support, and seamless checkout drive repeat sales.
- Subscription models – Introduce memberships, subscriptions, or auto-replenishment services.