CLV (Customer Lifetime Value)

What is Customer Lifetime Value (CLV/CLTV)?

CLV (also known as CLTV) stands for Customer Lifetime Value, a term for the value (in monetary terms) a customer brings to your business. In other words, how much money you earn per customer; from the first to the last purchase. Typically, the average CLV is used — i.e. how much you earn on average from a single customer.
Customer Lifetime Value is what we refer to in English as customer value or customer lifetime value.

An example of a customer's lifetime value is, for instance:

An example of a customer's Customer Lifetime Value:

1. Customer makes first purchase of 350 kr.
2. Customer makes a second purchase 2 months later for 400 kr.
3. Customer makes their last purchase from the company 6 months later for 150 kr.
4. The profit margin is 40%.
   

The customer's lifetime is 8 months (time from first to last purchase) and the total customer value is therefore: (350+400+150)*0.4 = 360 kr.

But as mentioned: When Customer Lifetime Value is used in practice as a measurable KPI, you measure the average customer value — i.e. how much you earn on average from a single customer.

Why work with customer value?

By calculating your CLV, you know how much you actually earn from a customer — i.e. the value of a customer to your business.
The problem with simply looking at the individual conversion as a unit and exclusively using KPIs such as CPA, CAC, ROAS etc. is that you only see the value of the individual conversion and not the total value the customer will bring to your business.
This risks campaigns, audiences or ads being incorrectly stopped because the true value of a new customer is not considered — only the short-term ROI.
Once you know how much a new customer is actually worth, you can start calculating how much you should pay for a new customer.
You should therefore work with your customer value as a KPI alongside your other critical measurable key figures such as CAC, ROI, CPA etc. to get a complete picture and sufficient data on which to base decisions, and to understand how long it takes to recoup the cost of acquiring a new customer.

How is the average Customer Lifetime Value (CLV) calculated?

There are several different ways in which you can calculate your average CLV. The following factors must be included in the calculation:

• Average order size = Revenue / Number of orders
• Average number of purchases per customer = Number of purchases / Number of customers
• Average profit margin in percent = (Avg. selling price – avg. purchase price) / Avg. selling price * 100

Customer Lifetime Value (CLV) formula:Once you have calculated the above values, you calculate your Customer Lifetime Value as follows:
(Avg. order size * Avg. number of purchases per customer) * Profit margin = Average CLV

Example of calculating average customer value (CLV)

Let's say, for the sake of example, a company has an average order size of 400 kr., a customer purchases from the company on average 4 times/makes 4 payments, and the average profit margin is 40%. The average customer value for the company is therefore:

(400 kr. * 4 purchases) * 0.4 = 640 kr. is what a customer generates for the business on average.

How do I increase Customer Lifetime Value (CLV)?

Many factors affect your average Customer Lifetime Value.
In addition to your product and your type of customers — which have a major influence on your average customer value — there are a number of other factors that come into play, which you can adjust, optimise and fine-tune.
Fundamentally, there are three factors — beyond industry and customer type, which cannot be influenced — that you can optimise to increase your CLV:

• Customer loyalty: how long do your customers stay, and how often do they buy. The higher the customer loyalty, the higher the CLV.
• Order size: how much do your customers spend per order. The larger the order size, the higher the CLV.
• Profit margin: how much do you earn per product sold. The higher the profit margin, the higher the CLV.

Each of these can be influenced and increased individually, allowing you to get more out of your customers and achieve a higher CLV.

The profit margin naturally depends on the selling and purchase price, so here only these two parameters can be adjusted — where the selling price will also affect demand and therefore impact CLV in multiple ways.

9 practical tips for increasing your Customer Lifetime Value

1. Create email marketing flows to reduce churn customers.
2. Create email marketing flows to reward loyal customers.
3. Create email marketing flows to encourage repeat purchases.
4. Ensure your customers can easily and conveniently access support when needed.
5. Work with CRO on your website and increase the number of conversions.
6. Actively work with upselling on your website.
7. Improve your onboarding process for new customers.
8. Give customers a great experience.
9. Create useful content for existing customers.

Read more about email marketing, marketing automation and content marketing here on the website.

Would you like concrete advice on increasing your customer value?

We work with increasing CLV and the disciplines that can help grow it across industries and markets. Would you like concrete advice and sparring regarding a higher Customer Lifetime Value? Call us on 30 12 42 72 and let's have a conversation about how we can help you increase the lifetime value of your customers.