Customer lifetime value

Customer lifetime value (CLV) measures the total revenue a business can expect from a customer throughout their entire relationship. This metric helps understand how much can be spent on acquiring customers while maintaining profitability.^[1] CLV considers factors like average purchase value, purchase frequency, and customer lifespan.

Basic CLV calculation multiplies the average revenue per customer by the average customer lifespan in months or years. For subscription businesses, this includes the monthly subscription value and any additional purchases or upgrades. For example, if a customer pays $50 monthly and typically stays for 24 months, their basic CLV is $1,200 ($50 x 24). If they also spend an average of $100 on additional services each year, their total CLV becomes $1,400. More advanced calculations factor in customer acquisition costs, service costs, and retention rates to provide a more accurate profitability picture.

Understanding CLV helps prioritize customer segments and guides decisions about marketing spend, feature development, and customer service investments. Different customer segments often show varying lifetime values, making this metric crucial for strategic planning and resource allocation.