Customer Lifetime Value: why should you know this index

What is the Customer Lifetime Value? Definition of CLV

Customer Lifetime Value is a forecasted value of our whole future relationship with a client. In other words: this index precises the value of our relationship with a client and is expressed monetarily. It’s important to know your CLV, because you can measure how much worth is your client’s interaction with your offer - with a product or with a service. CLV is also known as simply LTV - Lifetime Value.

Calculating and analyzing your Customer Lifetime Value lets you make more conscious decisions in terms of acquiring new customers. It’s also applicable to price strategies, marketing, sales and product development.

Customer Lifetime Value lets you:

define how much should you invest in acquiring a new client for your business,

help allocate the advertising budget,

understand which clients (or clients groups or target groups) are the most important for your business,

make the process of customer retaining and maximizing their value easier.

How to calculate the Customer Lifetime Value? The CLV formula

Here is a basic formula for calculating Customer Lifetime Value.



For example: our customer buys a book package every two months for 5 years now. Every package is worth 100$. His Customer Lifetime Value will be then: CLV = 100 x 6 x 5 = 3000$

Why is it important to measure CLV?

Understanding profitability. By calculating and analyzing CLV you can measure for how long and how much you should invest in relationships with customers to make them profitable.

Optimization of customer acquisition costs (CAC). You can adapt your marketing and sales strategy in such a way that you do not exceed your CLV over CAC.

Offer personalization. Knowing which customer segments have the highest CLV lets you adapt your products, services and marketing communications in a better way.

Optimization of customers’ satisfaction and loyalty. Focusing on clients with high CLV makes them simply happier. It translates into a long term business success.

Taking care of customer retention. Knowing the CLV lets you make better decisions in terms of ways and budgeting your customer retention activities. You can also manage factors that influence how often and how much your customers buy better.

How to increase Customer Lifetime Value?

It’s natural that companies want to increase their Customer Lifetime Value. How to do it properly?

Optimize User Experience. Improvements in customer service and personalization of experiences. It’s important to optimize your website with good SEO, UX and UI (User Interface) practices.

Encourage your customers to buy more often and increase their engagement. You can do it via loyalty programs.

Offer your customers additional products and services that may interest them.

Increase customer satisfaction. Monitor it and react to their opinions to make your offer better.

Do all companies need to calculate CLV?

Customer Lifetime Value is a really useful and important tool, yet not every company needs to focus on it. If your company is fresh and new to the market, you should consider calculating CLV. It’ll help you make key decisions on customer segments and adapt a strategy to every single one of them in a better way. Understanding the importance of CLV helps any organization to plan their growth strategies and profitability strategies better. That’s why we strongly recommend calculating and analyzing your CLV.

Summing up...

Customer Lifetime Value is a really important index that it’s good to know. It lets you estimate profitability of investing in the client or in a group of clients. What you need is accurate data on transactions, customer lifetime and other information that let you calculate it right and make conscious decisions based on the outcome. You can calculate your CLV in many different ways, taking into account the data you want to focus on. What’s most important is to draw right conclusions that you adapt to strategic decisions.