What Is Customer Lifetime Value (CLV)?
CLV is the total revenue you expect from a customer over their entire relationship with you. It changes everything about how you think about acquisition costs.
Key Takeaways
- CLV = Average Order Value × Purchase Frequency × Average Customer Lifespan.
- CLV tells you the maximum you can profitably spend to acquire a customer.
- Improving retention has a compounding effect on CLV.
The formula
CLV equals Average Order Value multiplied by Purchase Frequency (orders per year) multiplied by Average Customer Lifespan (years). A customer who spends £60 per order, orders four times per year, and remains a customer for three years has a CLV of £720. This is the total expected revenue from that customer relationship.
CLV and customer acquisition cost
CLV only becomes actionable when compared to Customer Acquisition Cost (CAC). If CLV is £720 and CAC is £80, you have a healthy ratio (around 9:1) and room to invest in growth. If CAC is £400, you need either to increase CLV or reduce CAC — or the business economics don't work.
Why retention has a compounding effect
Increasing purchase frequency from 3 to 4 times per year increases CLV by 33%. Extending customer lifespan from 2 to 3 years increases CLV by 50%. A retention strategy that achieves both simultaneously can double CLV — dramatically improving the economics of your acquisition spend.
Segmenting CLV
Not all customers have the same CLV. Segment by acquisition channel, product category, or geography to understand which customer cohorts are most valuable. Double down on acquiring more customers who look like your highest-CLV segment. AskBiz's customer intelligence module calculates CLV by segment automatically.