Customer Lifetime Value (CLV) is one of the most important metrics for any e-commerce business. It tells you how much revenue a single customer is expected to generate throughout their entire relationship with your brand.
How to Calculate CLV
The basic formula is straightforward: multiply your average order value by the number of purchases per year, then multiply by the average customer lifespan in years.
CLV = Average Order Value × Purchase Frequency × Customer Lifespan
For example, if a customer spends $50 per order, shops four times a year, and remains a customer for three years, their CLV is $600.
Why CLV Should Drive Your Marketing Budget
Once you know your CLV, you can determine exactly how much you can afford to spend acquiring a new customer. If your CLV is $600, spending $60 on customer acquisition gives you a healthy 10:1 return.
How to Increase CLV
- Introduce a loyalty rewards programme
- Send personalised post-purchase follow-ups
- Upsell and cross-sell relevant products
- Improve product quality and customer service
- Create subscription or membership options
Businesses that focus on CLV rather than one-time sales consistently outperform competitors. Retaining an existing customer costs five times less than acquiring a new one — and loyal customers spend an average of 67% more than new ones.