How to Calculate Customer Life Time Value

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How to Calculate Customer Life Time Value

Many of us speak about customer Life Time Value (CLV) and long-lasting customer relationships but still more people don’t know how to calculate the Customer Life Time Value. It’s vital to know about your CLV to understand the value of the customers and make informed decisions.

What’s Customer Life Time Value?

Customer lifetime value is a metric that represents the total net profit a company can expect to generate from a customer throughout their entire relationship. It covers the customer’s initial purchases, repeat purchases, and the average duration of their relationship with the business.

If a customer purchases continuously from you again and again, it’s a good sign that you have a positive CLV and it indicates that you have to spend less amount for customer acquisition cost.

How to Calculate Customer Life Time Value?

Here is the simple calculations

Customer Value =  Average Purchase Value X Average Number of Purchases

Average Purchase Value = Total Revenue / No.of. Orders

Average Customer Life Span = Sum of Customer Life Spans / Number of Customers

Then finally here is the formula

Customer Life Time Value = Customer Value X Average Customer Life Span

Now you’re good to go, its time to calculate your CLV to understand the value of your customers. If this post is beneficial then share your comments below

Verginiya Patrick Asked question December 19, 2023