Customer Lifetime Value is a metric a business owner estimates the total revenue a customer will likely spend with the business over a certain time.

If customers spend more time with the business, they will spend more. In other words, the Customer Lifetime Value will increase. With a high CLV, a business has a larger, valued customer base that is loyal.

How to Calculate Customer Lifetime Value with Example

The calculation for Customer Lifetime Value is done through this formula. Note that this basic calculation does not consider the customer acquisition cost, inflation, and other factors.

Customer Lifetime Value (CLV) = Average Purchase Value x Average Purchase Frequency x Average Customer Lifetime

For explaining purposes, let’s look at a basic example.

A customer visits a coffee shop thrice a week and spends around Rs 250 on each visit. And this customer has been visiting that same coffee shop for two years.

Average value per purchase = Rs 250

Average number of purchases per year = 3 visits per week x 52 weeks per year = 156 visits every year

Average customer lifetime = 2 years

The CLV formula, then is

CLV = (Rs. 250) * (156 visits/year) * (2 years) = Rs. 78000

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