Personalization Glossary

# Customer Lifetime Value (CLV)

Июн 9, 2016

Customer Lifetime Value definition – Customer Lifetime Value (also known as CLV or LTV) is an estimation of the amount of revenue a customer will generate over the course of their relationship with your brand. It is a highly useful method eCommerce marketers use to estimate marketing costs and analyze an acquisition strategy.

## Customer Lifetime Value Formula

On a basic level, lifetime value calculation is as follows:

(Average value of a sale) X (# of repeat transactions) X (average retention time in months or years)

To illustrate, if a health club member spends \$45 each month for five years, the Customer Lifetime Value of that customer would be 45 x 12 x 5= \$2700 or \$540 a year.

A more advanced formulation to calculate Customer Lifetime Value is: t(52 x S x C x P), where (t) is the average customer lifespan, (S) the average customer expenditure per visit, (C) the average number of visits per week, (P) the average profit margin per customer.

## Customer Lifetime Value Example

If the CLV of an average customer is \$6,000, and the CLV of a valuable customer is \$10,000, by subtracting the two you might expect to pay \$4,000 to acquire a valuable customer.

## The Importance of Customer Lifetime Value

An effective way for eCommerce marketers to gauge a valuable customer vs. an average customer is by segmenting different audiences and calculating Customer Lifetime Value according to total purchases made over a long time period (six months to a year). Doing this will not only set a baseline CLV for comparison with new customers but will separate the heavier hitters from customers who made a one-off or minimal amount of large purchases. Using this method, marketers can engage heavy spenders with real-time personalization and 1:1 messages to increase conversions and revenue metrics such as Average Order Value.