Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV or LTV) is the total revenue you expect from a customer over their entire relationship with your company. It's a critical metric for determining how much you can afford to spend acquiring customers and which customer segments are most valuable.
How to Calculate CLV
Basic formula: Average Purchase Value × Purchase Frequency × Customer Lifespan
SaaS formula: (Monthly Recurring Revenue per Customer × Gross Margin %) / Monthly Churn Rate
Why It Matters
CLV determines sustainable customer acquisition cost (CAC). If your CLV is $10,000, you might spend up to $3,000-$4,000 to acquire a customer (targeting 3:1 LTV:CAC ratio). Knowing CLV by segment helps you invest more in acquiring high-value customers and improve retention of your most valuable cohorts.
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