Customer lifetime value (CLV), sometimes referred to as lifetime value (LTV), is the profit margin a company expects to earn over the entirety of their business relationship with the average customer.
Customer lifetime value must account for customer acquisition costs (CAC), ongoing sales and marketing expenses, operating expenses, and, of course, the cost required to manufacture the product and services the company is selling.
Our customer lifetime value calculator takes into account your average sale value, number of transactions per customer per year, average customer retention period, and average profit margin for each sale.
For example: the average sale for a boutique clothing retailer, Acme, is $12.50. The average customer shops with them four times a year and stays with them for 2 years. Acme’s profit margin is 10%.
Average Sale Value: $12.50
Number of Annual Transactions per Customer: 4
Retention Period (in months): 24
Profit Margin: 10%
CLTV= Average Sale Value x No of Annual transactions per Customer x Retention Period x Profit Margin
= 12.50 X 4 X (24/12) X 0.1