What is Customer Lifetime Value?

Customer lifetime value is an estimation of the amount of money a customer will be worth to your brand. Ecommerce marketers use this number to estimate marketing costs and analyze acquisition strategies. It is often referred to as CLV or LTV.

Is there a Formula for Customer Lifetime Value?

(Average sale value)* (the number of sales)*(the average time your customer keeps purchasing from you, or retention time)

CLV Formula example

As an example, let’s say if a certain subscriber in your business spends $20 per month for ten years, their Customer Lifetime Value or CLV would be 20*12*10= $2400 or $240 each year.

Why is CLV important?

To figure out if a customer is average or valuable, eCommerce marketers can segment audiences and see which ones have purchased more over time.

The customer acquisition method discussed in the previous section will provide an initial benchmark to compare with new customers, but separating heavy spenders from those who only make one-time or limited purchases means marketers can more effectively engage them with personalized messages appropriate for each type of customer and achieve better conversions on a per transaction basis.