Introduction
Customer Lifetime Value (CLV) tells you how much money a customer will bring to your business over time. This number helps you make smart choices about how much to spend on getting new customers and keeping old ones happy. When you know your CLV, you can spend the right amount on ads and customer service without losing money.
Our CLV calculator makes it easy to find this important number. You just need to know a few things about your customers: how much they spend, how often they buy, and how long they stay with you. The calculator does the math and shows you exactly how much each customer is worth to your business. This helps you plan better and grow your company faster. For businesses focused on customer acquisition, you might also want to check our CAC Calculator to understand your acquisition costs better.
How to use our Customer Lifetime Value Calculator
Enter your business numbers to find out how much money each customer brings to your company over time. The calculator will show you the total value and help you make better business choices.
Average Order Value: Type in how much money customers usually spend each time they buy something from you.
Purchase Frequency: Enter how many times per year a customer buys from your business.
Customer Lifespan: Put in how many years a customer typically stays with your company.
Gross Margin: Enter what percent of each sale is profit after paying for the product or service. This is similar to calculating profit margins like you would with a Dividend Yield Calculator for investment returns.
Customer Acquisition Cost: Type how much money you spend to get one new customer (shows when using advanced modes).
Discount Rate: Enter the interest rate used to calculate today's value of future money (for advanced calculations).
Annual Retention Rate: Put in what percent of customers come back each year (for predictive calculations).
Direct Marketing Cost: Enter how much you spend on marketing per customer each year (for detailed analysis).
What is Customer Lifetime Value (CLV)?
Customer Lifetime Value is the total amount of money a customer will spend with your business during their entire relationship with you. Think of it as the total worth of a customer to your company over time. If someone buys from you multiple times over several years, their CLV is the sum of all those purchases minus any costs to serve them.
Why CLV Matters for Your Business
CLV helps you make smart business choices. When you know how much a customer is worth, you can decide how much to spend on getting new customers. For example, if a customer will bring you $1,000 over three years, spending $100 to get that customer makes sense. But if they only bring $50, that same $100 would lose you money. Understanding these metrics is as important as tracking investment returns with tools like a Dividend Calculator for your portfolio.
Key Parts of CLV
Three main things determine CLV. First is how much customers spend each time they buy (average order value). Second is how often they buy from you (purchase frequency). Third is how long they stay your customer (customer lifespan). When you multiply these together, you get a basic CLV. More advanced methods also consider your profit margins, the cost to get customers, and how many customers you keep each year.
Using CLV to Grow Your Business
Smart businesses use CLV to guide their choices. They compare CLV to customer acquisition cost (CAC) to see if their marketing works. A good CLV to CAC ratio is at least 3:1, meaning customers bring three times more value than they cost to get. Companies also use CLV to find their best customers and focus on keeping them happy. By increasing any part of the CLV formula - getting customers to spend more, buy more often, or stay longer - businesses can grow without needing more customers. For long-term financial planning, you might also explore our
CLV stands for Customer Lifetime Value. It shows the total money one customer will spend at your business during all the time they buy from you. This helps you know if spending money to get new customers makes sense. Start with Simple CLV if you are new to this. It multiplies order value, buying frequency, and customer lifespan. Use Traditional CLV when you need to include costs and profit margins. Pick Predictive CLV for the most detailed view with future value calculations. A ratio of 3:1 or higher is good. This means each customer brings in three times more money than it costs to get them. If your ratio is below 1:1, you lose money on each customer. Between 1:1 and 3:1 means you should work on making it better. You can raise CLV three ways. First, get customers to spend more each time they buy. Second, help them buy more often through email or rewards programs. Third, keep customers longer by giving great service and staying in touch with them. Retention rate is the percent of customers who keep buying from you each year. If you have 80% retention, that means 8 out of 10 customers come back. Higher retention means higher CLV because customers stay with you longer. Add up all your sales for a month or year. Then divide by the number of orders. If you made $10,000 from 100 orders, your average order value is $100. Use this number in the calculator. Payback period tells you how many months it takes to earn back the money you spent getting a customer. If you spend $50 to get a customer and they spend $25 per month, your payback period is 2 months. Shorter is better for cash flow. Use discount rate for advanced calculations when you want to know today's value of future money. A dollar today is worth more than a dollar next year. Most small businesses can skip this unless doing detailed financial planning.Frequently Asked Questions
What does CLV mean?
How do I pick the right calculation method?
What is a good CLV to CAC ratio?
How can I increase my CLV?
What is retention rate and why does it matter?
How do I find my average order value?
What is the payback period?
Should I use discount rate in my calculations?