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Customer Lifetime Value (CLV)

Customer lifetime value (CLV), also called lifetime value (LTV), is a prediction of the amount of money that a single customer will spend with your brand over their lifetime.

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Why is it important to calculate CLV?

Direct marketing legend Dan Kennedy said it best:

“The business that can spend the most to acquire a customer wins.”

And it’s impossible to know how much you can afford to spend on acquisition if you don’t know your CLV. Once you do, you can determine the ceiling for your customer acquisition costs. Then, you can use that ceiling to guide all of your advertising efforts.

How do I calculate CLV?

The easiest way to calculate your CLV is to multiply your average order value (AOV) by your average purchase frequency rate. So the average amount of money someone spends on one purchase multiplied by the average number of times a customer will purchase over their lifetime. Here’s the formula:

AOV x Average Purchase Frequency Rate = CLV

How do I increase CLV?

The quickest way to increase CLV is by increasing AOV. And the quickest way to increase AOV is through upsells, cross-sells, and downsells. But, spamming your prospective customers with new products at checkout isn’t the way to go. So, what do you do? You offer personalized product recommendations based on their behaviour – which you can learn more about by clicking here.