Customer Lifetime Value (CLV): Formula Guide

Direct Answer: What Customer Lifetime Value Is and How to Calculate It Customer lifetime value (CLV) is the total revenue a business can expect from a single customer account over the entire duration of their relationship. The simplest formula is: CLV = Average Purchase Value x Purchase Frequency x Average Customer Lifespan . For a subscription business, it is even simpler: CLV = ARPU x Gross Margin % / Monthly Churn Rate . A healthy CLV:CAC ratio is 3:1 or higher, meaning you earn three dollars for every dollar spent acquiring a customer. If your ratio is below 1:1, you are losing money on every customer you acquire. Customer lifetime value is the metric that separates businesses that scale profitably from businesses that grow themselves into bankruptcy. A company can have perfect product-market fit, a strong brand, and growing revenue, and still fail because it spends more acquiring each customer than that customer will ever be worth. CLV answers the most important question in busine