What is Customer Lifetime Value (CLV)?

Customer Lifetime Value (CLV or CLTV) is a prediction of the net profit attributed to the entire future relationship with a customer. It tells you how much a customer is worth to your business in profit, not just revenue.

Why is CLV so important for a business?

CLV helps you make critical business decisions. It tells you how much you can afford to spend to acquire a new customer (Customer Acquisition Cost or CAC), helps you identify your most valuable customer segments, and guides your customer retention strategies.

How can I improve my Customer Lifetime Value?

You can increase CLV by: 1) Increasing the Average Purchase Value through up-sells and cross-sells, 2) Increasing Purchase Frequency with loyalty programs and targeted marketing, and 3) Increasing Customer Lifespan by providing excellent service and building strong relationships.

Customer Lifetime Value (CLV) Calculator

The True Worth of a Customer

A single sale is just one chapter in a customer's story with your business. **Customer Lifetime Value (CLV)** tells you the value of the entire book. It calculates the total *profit* you can expect from a customer from their first purchase to their last. Why is this so powerful? Because it changes how you think about your marketing budget.

If you know a customer is worth $1,000 in profit over their lifetime, you can confidently spend a portion of that to acquire them. CLV helps you shift from a short-term, transactional mindset to a long-term, relational one, focusing your efforts on attracting and keeping high-value customers who will drive sustainable growth.

Marketing & Strategy Calculators

Customer Acquisition Cost (CAC) Calculator: Calculate how much you spend to get a new customer and compare it to your CLV.
Return on Investment (ROI) Calculator: Measure the effectiveness of your marketing campaigns.
Profit Margin Calculator: Determine the Gross Margin percentage needed for this calculator.

Frequently Asked Questions (FAQ)

What's a good CLV to CAC ratio?

A commonly cited benchmark for a healthy business is a CLV to CAC (Customer Acquisition Cost) ratio of 3:1 or higher. This means for every dollar you spend to acquire a customer, you get three dollars back in lifetime profit. A ratio of 1:1 means you are breaking even on each customer, which is not sustainable.

Is this a simple or complex CLV formula?

This calculator uses a common and effective historical CLV model, which is excellent for most businesses to get a strong baseline understanding. More complex predictive models can also incorporate customer churn rate and a discount rate for future profits, but this provides a clear, actionable starting point.

What should I use for "Gross Margin"?

Gross Margin is your (Revenue - Cost of Goods Sold) / Revenue. It's the percentage of profit you make on a sale before accounting for operating expenses. If a product sells for $100 and costs you $60 to make, your gross profit is $40, and your gross margin is 40%. Use our Profit Margin Calculator if you need help finding this number.