Customer lifetime value (CLV, or LTV for life-time value), is the predicted amount of revenue an average customer will generate for your business over the entire lifespan of your relationship with them. The longer a customer continues to purchase from your business, the greater their lifetime value becomes.
CLV tells you the state of your audience relationships, how much your customers like your products or services, what you’re doing right and areas you can improve. CLV helps you make important future business decisions about marketing, product development, sales, and customer support.
How do you calculate / determine CLV?
Customer lifetime valus is calculated using the following formula:
Average purchase value x purchase frequency rate x average customer lifespan.
Why is CLV important?
Customer lifetime value (CLV) is a fairly accurate prediction of the total value of a relationship your business has to an individual customer. Businesses can better understand how much they can spend to acquire a customer with new marketing campaigns.
What is an example of customer lifetime value?
If a customer spends $50 per purchase, purchases 6 times per year and remains an active customer for two years, the CLV would be $50 x 6 x 2 = $600. This means that marketing campaigns can spend much more to acquire that customer than their initial $50 purchase might indicate.