CLV Calculator

CLV formula

CLV=Average Purchase Value×Purchase Frequency×Customer Lifespan

Where:

• Average purchase value is the average amount spent by a customer in a single transaction.
• Purchase frequency is the average number of times a customer makes a purchase in a given time period.
• Customer lifespan is the average duration (usually in years) that a customer remains active with your business.

Understanding the CLV result

• A high CLV indicates that the customer is generating significant revenue over time, which is a sign of strong customer loyalty and effective customer relationship management.
• A low CLV suggests that the customer is not contributing much to the business over the long term, signaling the need to improve customer relationships and implement upselling, or cross-selling strategies.

When to calculate CLV

CLV should be calculated regularly to monitor the long-term value of your customer base. Some of the specific instances where CLV must be measured include:

• To identify high-value customer groups for targeted marketing.
• To develop customer acquisition and retention strategies based on the needs of high-value customers.
• Prior to seeking investment or valuing your company.

By understanding CLV, businesses can tailor their marketing efforts to focus on high-value customers, improve customer retention strategies, and allocate resources more effectively.

How to calculate CLV with example

Let’s say your business has the following data:

• Average purchase value = $50
• Average purchase frequency rate = 4 times per year
• Average customer Lifespan = 5 years

To calculate CLV:

CLV=Average Purchase Value×Purchase Frequency×Customer Lifespan

CLV = 50×4×5 = 1,000

In this example, the CLV is $1,000, meaning each customer is expected to generate $1,000 in revenue over their lifetime with your business.