Sales Loves Marketing

What is Customer Lifetime Value (CLV or LTV)?

Customer lifetime value (CLV or LTV) is an estimate of how much a customer is worth to a business over the whole relationship, ideally measured as profit rather than revenue. It helps decide how much you can afford to spend to win and keep a customer.

By Sales Loves Marketing teamOriginally written by Joran HofmanUpdated

Customer lifetime value (CLV or LTV) is how much a customer is worth to your business over the whole time they buy from you. It answers a practical question: how much can we spend to win and keep this kind of customer and still make money?

How do you calculate customer lifetime value?

There is no single formula. Pick the one that fits your business model.

Simple formula for repeat purchases

CLV = average purchase value × purchases per year × years as a customer

A runner who buys four pairs of $100 shoes a year for eight years is worth $100 × 4 × 8 = $3,200 in revenue to the shoe shop.

Formula for subscriptions

LTV = (monthly revenue per customer × gross margin) ÷ monthly churn rate

A SaaS customer paying $100 a month at a 25% gross margin, with 5% of customers cancelling each month, is worth ($100 × 25%) ÷ 5% = $500 in gross profit.

Watch the inputs

  • Revenue or profit? Revenue-based LTV can look several times higher than the real value. Use margin where you can.
  • History or forecast? Past spend is a fact. Future spend is an estimate, so CLV is only as good as your churn and retention assumptions.
  • Averages hide segments. Calculate LTV per channel, plan or customer type, not only for the whole base.

Why does customer lifetime value matter?

  • It sets your acquisition budget. Compare LTV with customer acquisition cost (CAC). A ratio of about 3:1 is a widely used rule of thumb for a healthy business.
  • It shows which customers to focus on. Channels that bring in fewer but longer-staying customers can beat channels that bring in many short-lived ones.
  • It makes retention measurable. Lower churn or more upsells show up directly as higher LTV.
  • It improves forecasts. Knowing how long customers stay helps you plan revenue, hiring and capacity.

Where can you find lifetime value data?

  • Your billing system or CRM, which holds actual revenue per customer over time.
  • Google Analytics 4. The User lifetime exploration shows lifetime revenue per user, broken down by dimensions such as first user medium, and can add predictive metrics such as churn probability. The retention overview report includes an "Average 120d value" card for new users.

How can you increase customer lifetime value?

  • Improve onboarding, so new customers reach value quickly and stay.
  • Offer upgrades, add-ons and annual plans that fit how customers grow.
  • Watch early signs of churn, such as falling usage, and act before renewal.
  • Ask for feedback with tools such as Net Promoter Score and fix what comes up most.
  • Segment your communication, so customers get offers that match their needs.

Frequently asked questions

How do you calculate customer lifetime value?

A simple version is average purchase value times purchases per year times the number of years a customer stays. For subscriptions, a common version is monthly revenue per customer times gross margin, divided by the monthly churn rate. For example, $100 a month at a 25% margin with 5% monthly churn gives an LTV of $500.

What is the difference between CLV and LTV?

None. Both abbreviations stand for customer lifetime value, and you will also see CLTV. What matters is that you state which formula you used, because revenue-based and margin-based numbers can differ a lot.

Why compare lifetime value with customer acquisition cost?

The LTV to CAC ratio shows whether winning a customer pays off. If it costs $500 to acquire a customer worth $300, you lose money on every sale. A ratio of about 3:1 is a widely used rule of thumb for a healthy business.