Customer Lifetime Value (CLV)
Customer lifetime value (CLV) is one of those terms that sounds more complicated than it really is. Put simply, it’s the total amount of money a customer is expected to spend with your business over the entire length of their relationship with you.
Depending on your business model, there are different ways to calculate CLV. Subscription businesses often take a more predictable approach since customer value is tied to recurring payments. For companies with a more transactional model (think eCommerce or one-off software licences), CLV might be based on average order value and purchase frequency over time.
Knowing your customer lifetime value helps you:
- Make better decisions about acquisition costs
- Understand the importance of retention
- Identify your most valuable customers
- Align teams around shared revenue goals
- Spot trends that can shape strategy and investment