What Is Customer Lifetime Value?

Marketing

Feb 23, 2025

Customer Lifetime Value (CLV) is essential for maximizing profits by understanding and enhancing customer relationships over time.

Customer Lifetime Value (CLV) is the total revenue a business expects from a customer over their entire relationship. It's a key metric for understanding customer impact, especially since:

Existing customers spend 67% more than new ones.
Acquiring new customers costs 5x more than retaining current ones.
A 5% increase in retention can boost profits by 25-95%.

CLV helps businesses allocate resources, improve customer retention, and drive profitability. To calculate CLV, you need:

Average Order Value (AOV): Revenue per order.
Purchase Frequency: How often customers buy.
Customer Lifespan: How long they stay with your business.

The formula is simple:
CLV = AOV × Purchase Frequency × Customer Lifespan

For example:
A coffee shop with $4 AOV, 100 visits/year, and a 5-year lifespan has a CLV of $2,000.

What Makes Up Customer Lifetime Value

Basic CLV Definition

Customer Lifetime Value (CLV) represents the total net profit a customer brings to a business throughout their relationship. Unlike metrics that focus on one-time transactions, CLV provides a broader view of a customer's long-term financial contribution.

Interestingly, while 89% of companies recognize CLV's importance in fostering brand loyalty, only 42% measure it accurately. This gap highlights the challenge of understanding its components .

Key factors that shape CLV include:

Customer behavior and satisfaction
How often and how much they purchase
Profit margins
Retention rates
Discount rates

Grasping these factors is essential for understanding how CLV shapes business strategies.

Business Impact of CLV

These core factors explain why CLV plays such a critical role in shaping business decisions. It influences how companies engage with customers and allocate resources.

"CLV puts a clear monetary value on customer retention. It's more cost-effective to keep a current customer than to acquire a new one, and knowing our customers' CLV has pushed us to enhance our loyalty programs and focus on keeping our users engaged."

The automotive industry offers a striking example. Half of all car owners never interact with their vehicle's brand after purchase, and only 7% use official brand apps . This signals a huge opportunity to boost customer engagement and increase lifetime value.

| Business Area | CLV Impact | Key Metric |
| --- | --- | --- |
| Marketing Strategy | Helps allocate resources effectively | 60-70% chance of selling to existing customers vs. 5-20% to new ones |
| Customer Service | Focuses on high-value customers | Loyal customers spend 31% more than new ones |
| Product Development | Prioritizes features that matter | 34% of car owners prioritize predictive maintenance as a top digital service |
| Revenue Growth | Fuels long-term profitability | Returning customers generate 3x more revenue than first-time buyers

"Using CLV, you can better understand the different personas among your customers - the first step to effective targeting or personalization."

A practical example of CLV in action can be seen at Desigual. Ricardo Gómez, their Global Head of 365 Consumer Marketing, focuses on raising CLV by fixing customer experience issues and running omnichannel campaigns that encourage offline shoppers to engage online .

CLV Calculation Steps

Main CLV Components

Calculating Customer Lifetime Value (CLV) starts with three key metrics:

Average Order Value (AOV): This shows how much customers spend per order. To find AOV, divide total revenue by the number of orders during a specific period. For example, if your business made $2 million from 100,000 orders, your AOV would be $20 .
Purchase Frequency: This measures how often customers buy from you within a set timeframe. It's calculated by dividing the total number of orders by the number of unique customers .
Customer Lifespan: This tracks how long customers stay engaged with your business. The length of time varies depending on the industry and business model.

CLV Math and Examples

These three metrics come together in the basic CLV formula:

CLV = Average Order Value × Purchase Frequency × Customer Lifespan

Here are a few examples across industries to show how CLV can differ:

| Industry | AOV | Annual Frequency | Lifespan | CLV Formula | Total CLV |
| --- | --- | --- | --- | --- | --- |
| Coffee Shop | $4 | 100 visits | 5 years | $4 × 100 × 5 | $2,000 |
| Car Dealership | $30,000 | 0.2 purchases | 15 years | $30,000 × 0.2 × 15 | $90,000 |
| Video Streaming | $17 | 12 months | 3.5 years | $17 × 12 × 3.5 | $714

These examples highlight how CLV varies based on the nature of the business.

"Customer lifetime value (CLV) is an essential metric for almost any customer experience (CX) program. It helps you to understand how profitable (or not!) a particular customer or customer segment is over their entire relationship with your brand." – Qualtrics

CLV Tracking Tools

Many businesses rely on tools to simplify and automate CLV calculations:

CRM Systems: Platforms like Salesforce and HubSpot track customer interactions and purchase history, offering basic CLV insights .
Web Analytics Tools: Google Analytics provides Lifetime Value reports that reveal how different customer segments perform over time .
Subscription Analytics Tools: Services like ChartMogul and ProfitWell automatically calculate and update CLV for subscription-based businesses .

For more advanced needs, Customer Data Platforms (CDPs) like Adobe Real-Time CDP combine data from multiple sources to deliver detailed CLV insights. E-commerce platforms such as Shopify also include built-in CLV calculators, often using RFM (Recency, Frequency, Monetary) analysis .

A good benchmark is maintaining a CLV to Customer Acquisition Cost (CAC) ratio of 3:1 or higher .

How to Calculate Customer Lifetime Value

Ways to Increase CLV

Improving Customer Lifetime Value (CLV) involves not just measuring it accurately but also applying strategies that focus on retention, personalization, and building strong customer relationships.

Customer Retention Methods

It's more cost-effective to retain customers than to acquire new ones. There’s a 60-70% chance of selling to a current customer, compared to just 5-20% for a new one .

Here are some ways to keep customers coming back:

Loyalty Programs and Rewards: Over 72% of U.S. adults are part of at least one loyalty program . Take Blume's "Blumetopia" program, for example. Customers earn Blume Bucks (BBs) for actions like social media follows, purchases, and reviews. These points can be redeemed for products or merchandise, keeping customers engaged.
Subscription Models: Annual subscriptions encourage long-term commitment. Venus et Fleur saw impressive results:
- 10-15% year-over-year growth in average order value
- 15% higher order values from Shop app users
- 12% fewer abandoned carts

Using Customer Data

Smart use of customer data can increase CLV by 5-15% .

| <strong>Company</strong> | <strong>Strategy</strong> | <strong>Results</strong> |
| --- | --- | --- |
| <a href="https://www.glassesusa.com/" target="_blank" rel="nofollow noopener noreferrer" data-framer-link="Link:{"url":"https://www.glassesusa.com/","type":"url"}" data-framer-open-in-new-tab="">GlassesUSA.com</a> | Chatbot powered by contextual customer data | Faster resolutions and better-quality conversations |
| <a href="https://boxycharm.ipsy.com/?srsltid=AfmBOooV7lJUfvoJ6LXA1ru51WHsbmGiTC351Ve8j9gxFj7pN1Hv5vQB" target="_blank" rel="nofollow noopener noreferrer" data-framer-link="Link:{"url":"https://boxycharm.ipsy.com/?srsltid=AfmBOooV7lJUfvoJ6LXA1ru51WHsbmGiTC351Ve8j9gxFj7pN1Hv5vQB","type":"url"}" data-framer-open-in-new-tab="">BoxyCharm</a> | Beauty quiz for personalized product matching | Improved customer satisfaction and recommendations |
| <a href="https://www.upwork.com/" target="_blank" rel="nofollow noopener noreferrer" data-framer-link="Link:{"url":"https://www.upwork.com/","type":"url"}" data-framer-open-in-new-tab="">Upwork</a> | Job feed tailored to freelancer profiles | More relevant opportunities and higher engagement |

Building Customer Relationships

Emotionally connected customers can deliver up to 306% higher lifetime value .

Proactive Support: Anticipate customer needs before they even ask. Four Seasons excels at this by tracking guest preferences to create personalized experiences, from tailored welcome gifts to curated itineraries .

"I look at personalization as adding familiarity for end-users. As humans, we are drawn to the familiar. We are drawn to our comfort zone. So, whenever a person is interacting with a company, they want that sensation of, 'Oh, I feel like they know me, and they understand my wants and needs.'" – Jason Maloney, Customer Success Manager at Grafana Labs

Value-Added Services: Offering premium perks and exclusive benefits strengthens long-term relationships. Marriott Bonvoy, for instance, uses gamification in its mobile app to make earning points and achieving status more engaging . Plus, 70% of consumers are more likely to recommend brands with strong loyalty programs .

CLV in Marketing Plans

Marketing Budget Planning

Knowing your Customer Lifetime Value (CLV) helps you decide how to split your budget between bringing in new customers and keeping the ones you already have. Here’s a striking fact: while 78% of marketing budgets are spent on acquiring new customers, repeat buyers - who make up just 8% of website traffic - contribute a whopping 41% of revenue .

CLV insights can help you fine-tune your spending. Here's how different focuses impact your budget:

| Marketing Focus | CLV Impact | Budget Consideration |
| --- | --- | --- |
| Customer Acquisition | Upfront investment | Weigh Customer Acquisition Cost (CAC) against the expected lifetime value |
| Customer Retention | A 5% boost in retention can increase profits by 25–95% | Prioritize resources based on the value of customer segments |
| Customer Support | Depends on the value of each customer group | Spend more on support for segments with higher CLV

For example, an electronics retailer broke down CLV by acquisition channel. They discovered that customers acquired through social media cost $60 to acquire, required $20 annually for support, and brought in $300 in yearly revenue (three $100 orders) over three years. However, organic search customers had even higher CLV, leading the company to shift more resources into SEO .

Long-term Marketing Goals

CLV isn’t just about short-term wins - it’s a powerful tool for shaping long-term strategies. By focusing on customer retention and detailed CLV tracking, businesses can align their investments with customers who bring the most value. Key strategies include:

Segment-Based Marketing: Customize campaigns for different customer tiers, focusing more effort on high-CLV groups .
Channel Optimization: Regularly review CLV across marketing channels to find the ones that bring in the most valuable customers.
Content Strategy: If CLV drops for a specific segment, it might be time to rethink your approach or experiment with new content .
Product Development: Use CLV data to guide feature updates or add premium service tiers aimed at high-value customers .

These strategies not only boost profitability but also set the stage for tools like Metrics Watch, which simplify CLV reporting. Up next, we’ll dive into how Metrics Watch automates this process to support your marketing goals.

Metrics Watch CLV Features

Automatic CLV Reports

Metrics Watch simplifies CLV tracking by gathering data from various platforms and sending tailored reports straight to your inbox. You can choose daily, weekly, or monthly delivery options .

These automated reports pull insights from multiple channels, making it easy to compare CLV across different customer segments (like Facebook Ads vs. Google Ads). This helps fine-tune your acquisition strategies effectively.

Report Design Options

Metrics Watch lets you customize CLV reports to suit your needs. Here’s a breakdown of the customization features:

| Feature | Benefit | Availability |
| --- | --- | --- |
| White-Label Customization | Add your company branding to reports | Pro & Agency Plans |
| Pre-Made Templates | Quick setup for standard reporting needs | All Plans |
| Advanced Widgets | Better data visualization tools | Agency Plan |
| Custom Data Sources | Connect unlimited marketing platforms | All Plans

These options allow you to focus on the CLV metrics that matter most, whether it’s purchase frequency, average order value, or retention rates. The platform ensures your data is presented in a clear, polished format.

Connected Marketing Tools

Metrics Watch integrates seamlessly with popular marketing tools, including:

Analytics Platforms: Google Analytics, Google Search Console
Advertising Networks: Facebook Ads, Google Ads, LinkedIn Ads, Microsoft Advertising
Social Media: Facebook Pages, Instagram, LinkedIn Pages
Email Marketing: Mailchimp
Additional Tools: Google Business Profile, Google Sheets

This integration supports tracking CLV throughout the entire customer journey. The Pro plan ($100/month) includes up to 25 reports with unlimited data sources, while the Agency plan ($300/month) offers up to 100 reports and extra features tailored for larger organizations .

Summary

Customer Lifetime Value (CLV) is a key metric that directly influences a company's profitability and growth. By analyzing CLV, businesses can make informed decisions about where to allocate resources for maximum impact .

The connection between customer retention and profitability is clear. For example, increasing retention by just 5% can result in 25-95% higher profits, as existing customers tend to place orders that are 31% larger than those of new customers .

To effectively measure and enhance CLV, businesses should prioritize:

Segmentation: Study customer behavior to identify and focus on high-value groups .
Data Integration: Combine insights from different stages of the customer journey.
Ongoing Tracking: Monitor metrics like purchase frequency, average order size, and retention rates.

Tools like Metrics Watch can simplify this process by gathering CLV data from various marketing platforms. These tools allow teams to track trends, identify opportunities, and refine strategies to increase customer value while optimizing marketing budgets.

CLV isn't just about numbers - it's about understanding and improving customer relationships. By focusing on CLV, businesses can create targeted strategies, improve customer experiences, and drive growth through better retention and engagement.