Definition
Customer Lifetime Value (CLV), sometimes written as LTV or CLTV, is the total net revenue a business expects to earn from a single customer over the entire duration of their relationship. It takes into account how frequently the customer purchases, how much they spend on average, and how long they continue to be a customer.
How to Calculate Customer Lifetime Value
A basic CLV calculation multiplies average purchase value by purchase frequency per year, then multiplies that by the average customer lifespan in years. For example, a customer who spends $200 per visit, visits four times a year, and remains a customer for three years has a CLV of $2,400. More sophisticated models deduct customer acquisition costs, account for the cost of goods sold, and apply a discount rate.
Why CLV Matters
CLV is useful because it shifts the focus from a single transaction to the overall value of a customer relationship. A business that only measures revenue per transaction might undervalue customers who buy smaller amounts but very consistently over many years. CLV corrects for this by showing the long-run value of each customer segment.
CLV to Customer Acquisition Cost Ratio
The ratio of CLV to customer acquisition cost (CAC) is one of the most scrutinised metrics in growth-stage businesses. A CLV:CAC ratio of 3:1 is often cited as a target for healthy unit economics. If it costs $100 to acquire a customer and that customer generates $300 in lifetime value, the business is spending responsibly on acquisition.
CLV Segmentation and Subscription Businesses
CLV varies significantly across customer segments. An analysis might reveal that a small proportion of customers, perhaps 20%, generate the majority of lifetime value. Identifying what those customers have in common allows the business to target similar profiles in acquisition campaigns.
For subscription businesses, CLV is particularly central to financial modelling. Monthly recurring revenue (MRR), churn rate, and average revenue per user all feed into CLV projections that determine how aggressively the business can invest in growth.