What is Customer Lifetime Value?
Customer Lifetime Value (CLV or LTV) represents the total amount of money a customer is expected to spend on your business during their lifetime as a customer. It’s crucial for understanding how much you can spend to acquire customers profitably.
CLV Formula (Simple)
CLV = Average Purchase Value × Average Purchase Frequency × Average Customer Lifespan
Example: $50 average order × 4 orders per year × 3-year relationship = $600 CLV
Why CLV Matters
- Marketing Budget: Determines how much you can spend on acquisition
- Customer Segmentation: Identify your most valuable customer segments
- Retention Focus: Justifies investment in customer retention
- Business Valuation: Higher CLV often means higher company value
Improving CLV
Increase purchase frequency through email marketing and loyalty programs. Increase average order value through upselling and cross-selling. Extend customer lifespan through exceptional service and ongoing value delivery.