Customer lifetime value (CLV)
Short definition
Customer lifetime value shows the total revenue a customer is expected to bring over their relationship with a brand.
It is estimated by multiplying average order value, purchase frequency and the length of time a customer stays with a brand. It gives a longer view than a single sale does; a customer who loses money on their first order can turn profitable by their second or third.
Customer acquisition cost needs to stay below this figure, or every new customer costs the business money. Subscription models and loyalty schemes in e-commerce both aim to raise this value. Winning a new customer usually costs more than keeping an existing one.
Read alongside audience segmentation, lifetime value shows which customer group deserves more investment; not every customer is worth the same. Without this figure, marketing budget tends to go to the largest group rather than the most profitable one.
Why it matters
Without knowing customer lifetime value, acquisition cost targets have no real anchor; whether the amount spent to win a customer is reasonable can only be judged against this figure. Without it, a campaign that looks profitable in the short term can quietly turn into a loss over the long one.
Illustrative example
When a spa chain calculated lifetime value separately for single-session customers and package buyers, it found that raising ad spend towards package buyers was the more profitable move.
