Customer lifetime value (CLV): what it is, how to calculate it and how to increase it
How much a customer is really worth to your business and how to make them worth more
Customer lifetime value (CLV) is the total value a customer brings to a business over the entire time they buy from it. It answers a simple question: how much is a customer really worth?
It doesn’t look at a single sale, but at the whole relationship. A customer who spends €30 a month for three years is worth much more than one who buys once for €200 and never comes back.
What does CLV mean?
Customer lifetime value means “the value of a customer over their whole life as a customer”. It’s also written as CLTV or LTV, and it’s sometimes called lifetime customer value.
There are two ways to look at it:
| Type | What it measures | What it’s for |
|---|---|---|
| Historical | What the customer has already spent | Knowing who your best customers are today |
| Predictive | What the customer is expected to spend in the future | Deciding how much to invest in acquiring and looking after customers |
Why calculate the value of a customer?
To know how much you can invest in acquiring a customer. If each one brings you €150 in profit, it makes no sense to pay €200 to get them.
To prioritize. It shows you which customers, channels or products bring longer relationships.
To measure loyalty. If this value goes up, your customers are buying more or staying longer.
To make level-headed decisions. A campaign that isn’t profitable on the first sale can be profitable over the course of the relationship.
CLV formula
The simplest formula, and the one most used by small businesses, is this:
CLV = average purchase value × purchases per year × years as a customer × margin
| Figure | How to calculate it |
|---|---|
| Average purchase value | Revenue ÷ number of orders (this is the average order value) |
| Purchases per year | Orders per year ÷ number of customers |
| Years as a customer | Average time a customer keeps buying |
| Margin | Percentage of profit on each sale |
If you don’t apply the margin, you get the value in revenue, not in profit. It’s useful, but it can be misleading if your margins are low.
Calculation example
An online cosmetics store has these figures:
Average purchase value: €40.
Purchases per year: 4.
Years as a customer: 3.
Margin: 30%.
The calculation is 40 × 4 × 3 = €480 in revenue per customer. With a 30% margin, the CLV is €144 in profit.
With that figure, the store knows it can spend up to about €50 to acquire a customer and still make money. That spend is the customer acquisition cost (CAC).
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The CAC ratio you should keep an eye on
This metric only makes sense if you compare it with what it costs you to acquire that customer:
| Ratio to CAC | What it means |
|---|---|
| Less than 1:1 | You lose money on every new customer |
| 1:1 to 3:1 | You earn little: review your costs or prices |
| 3:1 or more | A common benchmark for a healthy business |
| Well above 5:1 | You may be investing too little in growth |
In the example, €144 of value against €50 of CAC gives a ratio of close to 3:1.
How to increase customer lifetime value
There are three levers, one for each part of the formula:
Get them to spend more each time. Recommendations, bundles and cross-selling or upselling.
Get them to buy more often. Replenishment reminders, new arrivals and offers for customers.
Get them to stay longer. Good service, customer loyalty programs and fewer cancellations. Keep an eye on your churn rate.
The role of email marketing
Email is one of the cheapest channels for working on all three levers, because it reaches people who already know you:
Welcome. A good welcome sequence leads to the second purchase, the hardest one to get.
Post-purchase. Usage tips, related products and review requests.
Replenishment. A reminder when the product usually runs out.
Reactivation. A winback campaign for customers who haven’t bought anything in months.
Segmentation by value. With an RFM analysis, you can single out your most valuable customers and send them different messages.
Common mistakes
Calculating it once and forgetting about it. This value changes with prices, products and competition.
Using an average across all customers. Customers from different channels or products have very different values. Separate them.
Forgetting the margin. A high CLV in revenue can hide low profit.
Focusing only on acquisition. Improving retention usually raises it more than winning new customers.
How Mailrelay helps you
With Mailrelay, you can automate welcome emails, post-purchase emails and reactivation campaigns, and segment your customers based on what they buy. That way, you can work on it without multiplying your workload.
The free account includes up to 80,000 emails a month and 20,000 contacts, with human support by chat, ticket and phone.
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Frequently Asked Questions
These are the most common questions about customer lifetime value.
What is CLV in a nutshell?
What a customer brings to your business over the whole relationship, not in a single purchase.
What is the CLV formula?
Average purchase value × purchases per year × years as a customer × profit margin.
What’s the difference between CLV and LTV?
None. LTV and CLTV are other acronyms for the same metric.
What is a good CLV?
It depends on the industry. What matters is comparing it with the cost of acquiring a customer: a ratio of 3 to 1 or more is a common benchmark.
How do you increase CLV?
By getting each customer to buy more, more often and for longer. Email, customer loyalty and good service are the main levers.