Customer Lifetime Value (CLV)
The total revenue a business can expect from a single customer account throughout their relationship.
Customer Lifetime Value (CLV or LTV) is the total revenue expected from a customer over the entire duration of their relationship with your company.
**Calculating CLV:**
**Simple:** Average Revenue per Account × Gross Margin × Average Customer Lifespan
**Detailed:** Sum of (Monthly Revenue × Gross Margin) over customer lifetime, discounted to present value
**Why CLV Matters:**
• Determines acceptable CAC • Guides customer segmentation • Informs retention investment • Supports pricing decisions • Enables cohort analysis
**Improving CLV:**
• Reduce churn through customer success • Increase expansion revenue • Upsell to higher tiers • Cross-sell additional products • Extend customer relationships
**LTV:CAC Ratio:**
• Healthy: 3:1 or higher • Below 3:1: Acquisition too expensive • Above 5:1: May be underinvesting in growth
Related Terms
Customer Acquisition Cost (CAC)
The total cost of acquiring a new customer, including marketing and sales expenses.
Churn Rate
The percentage of customers or revenue lost over a given time period.
Net Revenue Retention (NRR)
A metric measuring revenue retained from existing customers including expansion and contraction.