Customer Lifetime Value (CLV): How to Calculate and Use It
CLV tells you how much a customer is worth over their whole relationship with you. Here's the formula and how it sets your acquisition budget.
Why CLV is a north-star metric
Customer lifetime value (CLV) estimates the total profit a typical customer generates over their relationship with your business. It tells you how much you can afford to spend winning and keeping customers. The free CLV Calculator works it out fast.
The formula
CLV = average order value × purchases per year × customer lifespan in years × gross margin %.
A customer who spends AED 250 per order, buys 4 times a year, stays 3 years, at a 60% margin, is worth AED 1,800 in lifetime profit.
CLV and acquisition cost
CLV only means something next to what it costs to acquire a customer. A common healthy benchmark is an LTV:CAC ratio of 3:1 — you earn three times what you spend to acquire each customer. Calculate the other half with the CAC Calculator.
Raising CLV
- Increase average order value with bundles and upsells.
- Improve retention so customers stay longer.
- Protect margin rather than discounting habitually.