Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) or Lifetime Value (LTV) is a metric companies use to determine how much money a customer will likely earn when they do business with the company.1

Instead of focusing on single sales, it considers all the purchases a customer might make while they have a relationship with the business and figures out how much revenue they will bring in. 2


The formula is:

clv formula

How Is CLV Calculated?

CLV is calculated by multiplying the average purchase value by the average number of yearly purchases and the average customer lifespan.3

CLV = Average Purchase Value x Average Purchase Frequency x Average Customer Lifespan

  • Average Purchase Value: Calculated by dividing total revenue by the number of purchases over a period.
  • Average Purchase Frequency Rate: Determined by dividing the number of purchases by the number of unique customers who made purchases during that period.
  • Average Customer Lifespan: An estimate of the duration of the business relationship with a customer.


The goal of calculating customer lifetime value is for businesses to know how much they can spend to get new customers and keep the ones they have.

By understanding CLV, companies can figure out which customers are the most profitable and adjust their marketing and customer service to make the most money.4

It also pushes businesses to aim for long-term customer happiness and loyalty instead of just quick wins.5


Customer Lifetime Value (CLV) is used across various business functions and industries to improve strategic choices and operations.

Here are some key areas where CLV is particularly useful:

  • Marketing: Helps decide how much to spend on ads to get new customers and which customers should get special offers.
  • Sales: Guides salespeople to focus on customers who will bring in more money over time.
  • Customer Service: Ensures that customers who spend a lot get great service so they keep coming back.
  • Making Products: Influences what new products to make or update, based on what loyal customers like.
  • Setting Prices: Helps set prices that will attract and keep customers who will spend more over time.
  • Keeping Customers: Helps create special programs to keep big spenders happy and loyal.
  • Spending Wisely: Shows where to best use money and effort to keep profitable customers around.6


Imagine you have a website where people pay monthly to watch workout videos. Let’s figure out how much one customer, Alex, might be worth over time:

  1. What Alex Pays: Alex’s subscription costs $10 every month.
  2. How Often: He pays this fee once a month.
  3. Spending Each Month: Alex spends $10 each month on his subscription.
  4. For How Long: We think, Alex will keep his subscription for about 3 years.
  5. Total Spending: We multiply his monthly spending by 12 to see his yearly spending, which is $120. Then, we multiply that by 3 (years) to see how much he’ll spend in total, which is $360.

So, over 3 years, Alex will spend a total of $360 on his subscription.

This helps the website know how valuable Alex is as a customer, guiding them on how much effort and money to put into keeping him happy and subscribed.

Related Terms


1. Wikimedia Foundation. (2023, December 2). Customer lifetime value. Wikipedia.

2. What is customer lifetime value (CLV) ?. Qualtrics. (2023, August 29).

3. Giovannoni, E. (2020). Digital Marketing Planning. (n.p.): Independently Published.

4. Martech, A. (2022, December 19). Customer lifetime value: What it is and why it matters. Wharton Online.

5. Your Ultimate Guide to Customer Lifetime Value. (2024, February 19).

6. Dutt, H. Life Time Valuation (LTV) for Customer Retention: Assessment for Churn Probability, Retention Analysis and Mapping Customer Profitability.

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