Customer Lifetime Value Calculator (CLV/LTV)

CLV is the total profit a business expects to earn from a customer over their entire relationship. It helps determine how much to spend on customer acquisition and retention. Formula: CLV = Average Purchase Value * Purchase Frequency * Customer Lifespan * Profit Margin.

Simple CLV = (Average Purchase Value * Purchase Frequency * Customer Lifespan) * Profit Margin. For example: $100 purchase * 4 times/year * 5 years * 20% margin = $400 CLV. Advanced methods include retention rates and discount rates for present value calculations.

A healthy CLV:CAC ratio is 3:1 or higher. This means CLV should be at least 3* your Customer Acquisition Cost. Ratios below 3:1 suggest unsustainable acquisition costs. Above 5:1 may indicate under-investment in growth. SaaS companies often target 3:1 to 5:1.

CLV guides: 1) Marketing budget allocation (spend up to 1/3 of CLV on acquisition), 2) Customer segmentation (focus on high-CLV segments), 3) Retention investment decisions, 4) Pricing strategy, 5) Product development priorities. Higher CLV customers justify more personalized service.

CLV (Customer Lifetime Value) and LTV (Lifetime Value) are the same metric with different abbreviations. Both measure total customer profit over time. Some use LTV for revenue and CLV for profit, but they're generally interchangeable. Use profit-based calculations for accuracy.

Strategies to increase CLV: 1) Increase purchase frequency (loyalty programs, subscriptions), 2) Increase average order value (upselling, bundling), 3) Extend customer lifespan (better service, engagement), 4) Improve profit margins (premium products, efficiency), 5) Reduce churn through retention programs.

Retention rate is the percentage of customers who remain active over time. Formula: [(Customers End - New Customers) / Customers Start] * 100. 80% retention means 20% churn annually. High retention dramatically increases CLV. A 5% increase in retention can increase profits 25-95%.

Discount rate accounts for the time value of money - future profits are worth less than today's. Use 8-15% discount rate typically. NPV-adjusted CLV = Σ (Annual Profit / (1 + r)^year). A $100 profit in year 5 at 10% discount = $62 present value. More conservative but realistic.

Payback period is how long to recover acquisition costs from customer profits. Formula: CAC / Average Monthly Profit. Example: $300 CAC, $50/month profit = 6 month payback. SaaS targets 12 months or less. Shorter payback improves cash flow and reduces risk.

For subscriptions: CLV = (Monthly Revenue * Gross Margin %) / Churn Rate. Example: $50/month * 70% margin / 5% monthly churn = $700 CLV. Alternatively: Average Revenue Per User (ARPU) * Customer Lifetime (1/churn rate) * margin. Factor in expansion revenue from upgrades.

Cohort analysis tracks groups of customers acquired together over time, measuring their actual revenue/profit patterns. More accurate than averages. Shows how CLV changes by acquisition period, channel, or customer segment. Reveals trends in retention and monetization effectiveness.

Negative CLV occurs when customer acquisition and service costs exceed their lifetime revenue. Indicates unprofitable business model. Common in aggressive growth strategies hoping for future profitability. Acceptable temporarily if: 1) Improving unit economics, 2) Network effects justify losses, 3) Clear path to profitability.