Customer Lifetime Value

What is the customer lifetime value?

Customer lifetime value (CLV) is the total revenue a customer brings to your business over the time they stay with you. The more they buy, the higher their value.

Why does customer lifetime value matter?

Some customers cost more to acquire than they spend at first. CLV shows if that customer becomes profitable over time.

With CLV data, you can spot your best customers—the ones who keep coming back and spending more. You can send them better offers and find others like them. This helps you give a better experience to new customers and turn them into loyal ones.

In ecommerce, price isn’t the only thing that matters. CLV lets you earn more from lower-spending customers and improve retention.

How to calculate customer lifetime value?

Four metrics affect CLV:

Average Order Value (AOV) = Total Sales Revenue / Total Orders
Purchase Frequency (PF) = Total Orders / Number of Unique Customers
Gross Margin (GM) = (Total Revenue – Cost of Goods Sold) / Total Revenue
Churn Rate (CR) = (Clients at End – Clients at Start) / Clients at Start

CLV formula:
CLV = AOV × PF × GM × (1 / Churn Rate)

How to improve CLV?

Start by comparing your KPIs to industry benchmarks. See where you’re below average. Focus on your weakest area first to get the best return.

Get better customers

Once you know your current CLV, you can figure out how much to spend on acquiring new customers. You’ll also know which channels bring in the best ones. Invest more in those.

Find future VIPs

Use your data to predict who might become high-value customers. Then build relationships with them early. Send helpful content or special deals to keep them engaged.

Segment your customers

CLV lets you group customers by value. You’ll see how much of your revenue comes from your top tier. Then you can create tailored offers for each group and improve their journey step by step.

Set a smarter ad budget

When you know your CLV, you can plan your ad spend and stay profitable. It helps you figure out how much more you can afford to invest in getting new customers.

Measure your ad performance

Without CLV, you only track short-term gains. With CLV, you can see which ads bring in long-term value and make better decisions.

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