Calculating Customer Lifetime Value (CLV)
A Free Guide and Calculator
Customer Lifetime Value (CLV) is one of the most powerful metrics for marketers and business owners. It measures the total revenue you can expect to earn from a customer throughout their entire relationship with your business. Unlike short-term metrics that focus on immediate sales, CLV takes a long-term view, helping you understand the true value of your customers and make informed decisions about how much to invest in acquiring and retaining them.
To help you calculate this important metric, we’ve embedded a Free CLV Calculator below. But before diving into the numbers, let’s explore what CLV is, why it’s important, and how you can use it to drive sustainable business growth.
What is Customer Lifetime Value (CLV)?
CLV estimates the total financial value a customer brings to your business over the course of their relationship. The formula for calculating CLV is:
For example, if your customers spend an average of £50 per purchase, make 4 purchases per year, and remain loyal for 5 years, the CLV would be:
This means it costs your business £100 to gain one new customer.
The Free Customer Lifetime Value (CLV) Calculator
We hope that our free CLV Calculator helps you to estimate the lifetime value of your customers. Simply input your average purchase value, purchase frequency, and customer lifespan to get instant results.
Customer Lifetime Value (CLV)
CLV: £-
Why is CLV Important?
- Focus on Long-Term Profitability
CLV helps you shift your perspective from short-term sales to building long-term, profitable customer relationships. - Set Better Acquisition Budgets
By understanding how much revenue a customer generates over time, you can determine how much you can afford to spend on acquiring them without sacrificing profitability. - Optimise Retention Strategies
A higher CLV often means better retention. When you understand what makes your most valuable customers stay, you can refine your retention strategies to keep them longer. - Improve Resource Allocation
CLV allows you to identify and prioritise high-value customers, ensuring your marketing and sales efforts target the most profitable segments.
How to Use CLV for Decision-Making
CLV works best when paired with metrics like Customer Acquisition Cost (CAC). Comparing CLV to CAC helps you assess the profitability of your marketing efforts. For example:
- If CLV > CAC: Your marketing efforts are generating profitable, long-term customers.
- If CLV < CAC: You may need to reduce acquisition costs or improve retention strategies to increase customer value.
We hope that our free CLV Calculator helped you to measure the effectiveness of your marketing campaigns.
Tracking CLV regularly empowers you to focus on retaining customers, maximising their value, and driving sustainable growth for your business.
