Calculate the estimated lifetime value of your customers by entering the following details.
Estimated Customer Lifetime Value:
220
Welcome to the Customer Lifetime Value (CLV) educational page. Here, you'll find a comprehensive guide to understanding, calculating, and interpreting CLV, along with answers to frequently asked questions.
Customer Lifetime Value (CLV) is a metric that represents the total revenue a business can reasonably expect from a single customer account throughout their relationship with the company. It's a projection of the future revenue attributed to a customer relationship.
There are several ways to calculate CLV, ranging from simple to complex. A common simplified formula for CLV is:
CLV = (Average Purchase Value × Average Purchase Frequency) × Average Customer Lifespan
Where:
Let's consider a hypothetical online coffee subscription service:
Using the formula:
CLV = ($30 × 12) × 3
CLV = $360 × 3
CLV = $1,080
This means, on average, each customer is expected to generate $1,080 in revenue over their 3-year relationship with the coffee subscription service.
A higher CLV indicates that customers are more valuable to your business over time. This can be achieved by:
A: CLV focuses on the total revenue generated by a customer over their lifetime. Customer Profitability, on the other hand, considers the revenue minus the costs associated with serving that customer, giving a net profit figure.
A: It's good practice to calculate CLV regularly, perhaps quarterly or annually, to track trends and assess the impact of your marketing and retention strategies.
A: In a simplified revenue-based calculation, CLV is typically positive. However, if you incorporate customer acquisition and service costs, a customer's lifetime value could effectively be negative if the costs outweigh the revenue generated.