Customer Lifetime Value Calculator

What Is a Customer Lifetime Value Calculator?

A Customer Lifetime Value Calculator estimates the total value a business can expect to generate from an individual customer throughout the customer's relationship with the business. Customer lifetime value is commonly abbreviated as CLV or LTV.

The calculation can help businesses understand the longer-term value of their customers rather than looking only at the revenue from an individual transaction. It is particularly useful when considered alongside customer acquisition cost, retention and profit margin.

Why Use a Customer Lifetime Value Calculator?

Customer lifetime value can provide a useful estimate of how much value an average customer generates over time. This calculator makes the calculation quick and allows you to separate annual customer value, lifetime revenue and estimated lifetime profit value.

How to Use the Customer Lifetime Value Calculator

Use figures that represent a typical customer and a consistent measurement period to produce a useful estimate.

1. Enter the average purchase value — Enter the average amount a customer spends each time they make a purchase.
2. Enter purchases per year — Enter the average number of purchases a customer makes during one year.
3. Enter the average customer lifespan — Enter the expected length of the customer relationship in years.
4. Enter the profit margin — Enter your profit margin as a percentage. Use 100% if you want to calculate revenue-based lifetime value rather than profit-based value.

How to Calculate Customer Lifetime Value

A commonly used customer lifetime value formula is average purchase value multiplied by purchase frequency multiplied by average customer lifespan. This produces an estimate of the total revenue generated by a typical customer over the expected relationship.

For a profit-based calculation, the estimated lifetime revenue can be multiplied by the business's profit margin. This provides an estimated lifetime profit value rather than total customer revenue.

Customer Lifetime Value Example

For example, if the average purchase is £50, a customer purchases six times per year, the average customer lifespan is three years and the profit margin is 40%, annual customer revenue is £300. Lifetime revenue is £900, and estimated lifetime profit value is £360.

CLV and Customer Acquisition Cost

Customer lifetime value is often evaluated alongside customer acquisition cost (CAC). CAC measures the average cost of acquiring a new customer, while CLV estimates the value that customer may generate throughout the relationship. Comparing the two can help businesses evaluate whether their customer acquisition activities are economically sustainable.

Understanding Customer Lifetime Value

CLV is an estimate rather than a guaranteed amount. Customer behaviour can change over time, and actual results may differ because of changes in purchase frequency, pricing, retention, product costs, discounts, refunds, churn and profit margins.

For more detailed analysis, businesses may use historical customer cohorts and more advanced retention, churn, discount-rate and margin assumptions. The simple CLV model used by this calculator is designed to provide a straightforward estimate from commonly available business figures.

Frequently Asked Questions