The total revenue a business can expect from a single customer over the entire relationship.
Customer Lifetime Value (CLV or LTV) is the total net revenue a business expects to earn from a customer throughout their entire relationship. CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan. Understanding CLV helps businesses determine how much to invest in acquiring and retaining customers, and which customer segments are most valuable.
CLV is the north star metric for customer-centric businesses. Maximising CLV — through retention, upsells, and cross-sells — is often more profitable than continuously acquiring new customers. CLV also determines how much you can profitably spend on acquisition (CAC).
A subscription service charges $50/month. Average customer stays 18 months. CLV = $50 × 12 × 1.5 = $900. With a target CLV:CAC ratio of 3:1, maximum acceptable CAC = $300.
Improve product quality, deliver great customer service, implement loyalty programs, use email marketing for retention, offer upsells and cross-sells, and build community.
CAC
Customer Acquisition Cost — total cost to acquire one paying customer.
ROI
Return on Investment — net profit divided by the cost of the investment, expressed as a percentage.
Conversion Rate
The percentage of visitors who complete a desired action (purchase, signup, etc.).
Marketing Automation
Using software to automate repetitive marketing tasks such as emails, social posts, and lead nurturing.