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.

How to use the CLV calculator

To calculate CLV, enter the average purchase value of the customer, the purchase frequency, and the customer lifespan into the CLV calculator. The calculator will then determine the CLV, giving you insights into how much revenue you can expect from the customer over the course of their relationship with your business.