Customer Lifetime Value (CLV) or lifetime value (LTV) – a metric that lets you estimate how much money a customer will spend with your company throughout their lifetime.
LTV is essential in marketing and customer relationship management (CRM). It lets you know how much you can spend on getting new customers while remaining profitable.
If your LTV is $500 and it costs $250 to get a new customer, you’re making money. But you’re losing money if it costs you $600 to get a new customer.
By understanding your LTV, you can ensure you’re not spending more money than you should. In general, the higher your LTV, the better. You can spend more on acquiring new customers while remaining profitable.
CLV / LTV formula
[CLV / LTV] = [Customer Value] * [Average Customer Lifespan]
Average Purchase Value Formula (APV)
[APV] = [Total Revenue] / [Number of Orders]
Average Purchase Frequency Rate (APFR) Formula
[APFR] = [Number of Purchases] / [Number of customers]
Customer Value (CV) Formula
[CV] = [Average Purchase Value] * [Average Purchase Frequency Rate]
Average Customer Lifespan (ALC) Formula
[ALC] = [Sum of Customers Lifespans] / [Number of Customers]