Customer Lifetime Value Calculator

What is Customer Lifetime Value?

Customer Lifetime Value (CLV) is the total worth to a business of a customer over the whole period of their relationship. It's an important metric that indicates the long-term value of customer acquisition and retention efforts.

CLV Calculation

• Basic Formula: Average Purchase Value × Purchase Frequency × Customer Lifespan
• Example: $100 average purchase, 4 purchases per year, 3-year lifespan
  • $100 × 4 × 3 = $1,200 CLV

Key Points

• CLV helps in understanding the long-term value of customer relationships
• It's crucial for determining how much to invest in acquiring and retaining customers
• CLV can vary significantly across different customer segments
• It's influenced by factors like customer satisfaction, loyalty programs, and product quality
• More complex CLV models may factor in profit margins and discount rates

Why CLV Matters

• Guides customer acquisition and retention strategies
• Helps in identifying and nurturing high-value customer segments
• Informs decisions on marketing budget allocation
• Provides context for interpreting Customer Acquisition Cost (CAC)
• Supports long-term business planning and forecasting

Using CLV

• Compare CLV to CAC to ensure profitable customer relationships
• Segment customers based on their lifetime value
• Tailor marketing and retention efforts to maximize CLV
• Use CLV insights to improve product development and customer service
• Monitor CLV trends over time to assess overall business health