What is Customer Lifetime Value (CLV)?

What is CLV and how do you calculate it?

Customer Lifetime Value (CLV) is a metric that estimates the total value a customer will bring to a business over the duration of their relationship with that business.

To calculate CLV, you will need to follow these steps: Determine the average value of a purchase: Calculate the average amount of money a customer spends per purchase. For example, if a customer typically spends €500 on a purchase, this is the average value of a purchase. Calculate the purchase frequency: Determine how often a customer makes purchases from your business.

For example, if a customer makes a purchase every two months, they have a purchase frequency of six times a year. Estimate the customer lifespan: Determine the average length of time a customer stays engaged with your business. If a customer typically makes purchases for two years before they move on, the customer lifespan is two years. Calculate the CLV: Multiply the average value of a purchase by the purchase frequency to get the customer value per year. Then, multiply the customer value per year by the customer lifespan to get the CLV.

For example, if the average value of a purchase is €500, the purchase frequency is six times a year, and the customer lifespan is two years, then the CLV would be: CLV = €500 x 6 x 2 = €6000 So, in this example, the CLV for this customer would be €6000. Repeat this process for each customer segment to get a better understanding of the overall CLV of your customer base.

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