Customer Lifetime Value (CLV or LTV) equals average purchase value multiplied by purchase frequency multiplied by customer lifespan. A customer spending £50 per order, buying 4 times per year, over 3 years has a CLV of £600. This single metric determines how much you can spend to acquire customers while staying profitable. Calculate your CLV instantly with the free tool below.
Key Takeaways
- CLV Formula: Average Purchase Value × Purchase Frequency × Customer Lifespan = Customer Lifetime Value
- Healthy CLV:CAC Ratio: Your CLV should be at least 3x your customer acquisition cost (3:1 ratio) for sustainable growth
- Profit Matters: Adjust CLV by your profit margin for a realistic picture — revenue-based CLV overstates what you actually keep
- Small Improvements Compound: A 10% increase in purchase frequency OR average order value increases CLV by 10%, but improving both increases it by 21%
- Industry Benchmarks: SaaS companies average 3-5 year lifespans, ecommerce averages 1-3 years, and subscription services average 2-4 years
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What Is Customer Lifetime Value?
Customer Lifetime Value (CLV) is the total revenue a single customer generates throughout their entire relationship with your business.
CLV answers the most important question in marketing: how much is a customer worth? Without this number, every marketing budget decision is a guess. You do not know if your £30 cost-per-acquisition is profitable or bleeding money. You cannot compare channels, campaigns, or customer segments meaningfully.
The basic CLV formula is straightforward: Average Purchase Value x Purchase Frequency Per Year x Customer Lifespan in Years. A coffee shop customer spending £4.50 per visit, visiting 3 times per week (156 times per year), over 2 years has a CLV of £1,404. That reframes every decision — a £10 loyalty card incentive is trivial against £1,404 in lifetime revenue.
CLV is not static. It changes as you improve retention, increase purchase frequency, or raise average order values. The most profitable businesses treat CLV as an operating metric they actively manage, not a number they calculate once and forget. Track it monthly alongside acquisition cost for a clear picture of business health.
How Do You Calculate Customer Lifetime Value?
Calculate CLV by multiplying three numbers: average purchase value, annual purchase frequency, and average customer lifespan in years.
Start by pulling each number from your actual data. Average purchase value comes from your total revenue divided by total number of transactions over the past 12 months. Purchase frequency is total transactions divided by unique customers in the same period. Customer lifespan requires churn data — if 25% of customers leave each year, average lifespan is 4 years (1 / churn rate).
Example: an online clothing retailer with £65 average order value, 2.8 orders per year, and 2.5 year average customer lifespan has a CLV of £455 (£65 x 2.8 x 2.5). If their customer acquisition cost is £85, their CLV:CAC ratio is 5.4:1 — well above the 3:1 benchmark.
For subscription businesses, CLV calculation is even simpler: monthly subscription price x average months before cancellation. A £29.99/month SaaS product with an average subscriber lasting 14 months has a CLV of £419.86. Add any upsell revenue to get total CLV.
What Is a Good CLV to CAC Ratio?
A CLV:CAC ratio of 3:1 or higher is the standard benchmark for healthy, sustainable customer acquisition economics.
At 3:1, every £1 spent acquiring customers generates £3 in lifetime revenue. This leaves enough margin to cover operations, fulfilment, support, and profit after recovering acquisition costs. The 3:1 target originated from venture capital benchmarks for SaaS companies but applies broadly across industries.
A ratio below 1:1 means you spend more acquiring customers than they ever generate — you lose money on every customer. Between 1:1 and 3:1, you are technically profitable per customer but the margins are thin. Above 5:1, you are either highly efficient at acquisition or underinvesting in growth — you could spend more on marketing and still maintain healthy economics.
Payback period matters too. A 3:1 CLV:CAC ratio with a 3-year payback requires you to fund customer relationships for 3 years before breaking even. The same ratio with a 6-month payback means rapid capital recovery and faster reinvestment. Calculate payback by dividing CAC by monthly CLV contribution.
Why Does CLV Matter for Marketing Budgets?
CLV sets the maximum amount you can spend to acquire a customer and still make money — without it, marketing budgets are arbitrary.
If your CLV is £600 and your target CLV:CAC ratio is 3:1, your maximum acquisition cost is £200 per customer. This budget ceiling applies across all channels: Google Ads, Facebook, SEO, content marketing, referral programmes. Any channel delivering customers under £200 is profitable. Any channel above £200 is losing money.
CLV-informed budgeting reveals which customer segments deserve the most investment. Enterprise customers with a £15,000 CLV justify £5,000 in acquisition costs. Small business customers with a £1,500 CLV only justify £500. Most businesses treat all customers equally in their acquisition spending, which massively misallocates budget.
Segment your CLV by acquisition channel to find your best sources. Customers from organic search often have 30-50% higher CLV than customers from paid social because search intent signals stronger purchase motivation. Shift budget toward channels producing the highest-CLV customers, not just the cheapest leads.
How Do You Increase Customer Lifetime Value?
Increase CLV by improving any of the three components: raise average order value, increase purchase frequency, or extend customer lifespan.
Raising average order value is the fastest lever. Cross-sell related products at checkout, offer bundle discounts (“£65 for one, £100 for two”), introduce a premium tier, or set a free shipping threshold above your current average. A 15% increase in AOV directly increases CLV by 15%.
Increasing purchase frequency requires ongoing engagement. Email marketing drives repeat purchases more effectively than any other channel — automated post-purchase sequences, replenishment reminders, and personalised product recommendations increase frequency by 20-40% for most ecommerce businesses. Loyalty programmes that reward frequency (buy 9, get 10th free) also work.
Extending customer lifespan means reducing churn. Identify why customers leave by surveying recent churns. Common reasons: found a cheaper alternative (fix with loyalty pricing), no longer need the product (fix with expanded use cases), or poor experience (fix with proactive support). Reducing annual churn from 25% to 20% increases average lifespan from 4 years to 5 years — a 25% CLV increase.
What Are Typical CLV Figures by Industry?
CLV varies enormously by industry, from £150-£400 in retail ecommerce to £5,000-£50,000+ in B2B SaaS and professional services.
Ecommerce and retail businesses typically see CLV of £150-£600 depending on product type and purchase frequency. Fashion retail sits at the lower end (£150-£300) because of seasonal purchasing and high competition. Consumable products like supplements, coffee, and pet food reach £400-£800 because of regular repurchase cycles.
SaaS companies average £1,500-£15,000 CLV for SMB products and £10,000-£50,000+ for enterprise tools. The subscription model creates predictable, long-term revenue streams. A £99/month SaaS product with 36-month average retention has a CLV of £3,564. Enterprise contracts at £1,000/month with 48-month retention reach £48,000.
Professional services (agencies, consultancies, accounting firms) often have the highest CLV at £5,000-£100,000+ because of long client relationships and recurring monthly retainers. A marketing agency charging £2,500/month retaining clients for an average of 18 months has a CLV of £45,000. These numbers justify the high acquisition costs typical in B2B sales.
Frequently Asked Questions
What is the difference between CLV and LTV?
CLV (Customer Lifetime Value) and LTV (Lifetime Value) are the same metric. LTV is simply the abbreviated form. Some businesses use CLTV as a third abbreviation. All three refer to the total revenue or profit a customer generates over their entire relationship with your business. The terms are completely interchangeable.
Should I use revenue or profit to calculate CLV?
Calculate both. Revenue-based CLV is simpler and more commonly referenced. Profit-based CLV (revenue CLV multiplied by your profit margin) gives a more accurate picture of actual business value. A £600 revenue CLV with a 40% margin is only £240 in profit CLV. Use profit-based CLV for acquisition budget decisions and revenue-based CLV for benchmarking.
How do I find my customer lifespan if I do not have churn data?
Look at your repeat purchase data. Find the percentage of customers who made at least two purchases, then calculate the average time between first and last purchase for all customers. Alternatively, use your annual retention rate: if 70% of customers return next year, average lifespan is approximately 1/0.30 = 3.3 years. For new businesses under 2 years old, use conservative industry benchmarks.
What is a good CLV for an ecommerce business?
The average ecommerce CLV is £150-£600 depending on product category and purchase frequency. More important than the absolute CLV is your CLV:CAC ratio. A £200 CLV with £20 CAC (10:1 ratio) is more profitable than a £1,000 CLV with £500 CAC (2:1 ratio). Focus on the ratio rather than the raw number.
How often should I recalculate CLV?
Recalculate CLV monthly if you are actively running acquisition campaigns. Update quarterly at minimum. CLV changes as your product, pricing, and customer mix evolve. A major price increase, new product launch, or shift in marketing channels can significantly alter your CLV within a single quarter. Automate the calculation in a dashboard for real-time visibility.
Can CLV be negative?
Revenue-based CLV is always positive (customers always spend something). However, profit-based CLV can effectively go negative when acquisition costs exceed profit-adjusted CLV. If your CLV is £200, profit margin is 30% (profit CLV = £60), and CAC is £100, you lose £40 per customer. The calculator above shows this through the CLV:CAC ratio falling below 1:1.
Does CLV include discounts and promotions?
Yes, use actual revenue after discounts, not list prices. If a customer buys a £100 product with a 20% discount, the purchase value is £80. Including full prices inflates your CLV and leads to overspending on acquisition. Pull revenue data from your payment processor or accounting system, which records actual amounts charged.
How does CLV differ for subscription vs one-time purchase businesses?
Subscription CLV is simpler: monthly price multiplied by average months retained. One-time purchase CLV requires estimating repeat purchase probability and frequency. Subscriptions typically produce higher, more predictable CLV because of automatic renewal. The average subscription business retains customers 2-4x longer than equivalent one-time purchase businesses.
Know Your Numbers Before Spending Another Pound
Customer Lifetime Value is the foundation metric for every marketing budget decision. Without it, you cannot determine which channels are profitable, which customer segments deserve more investment, or whether your acquisition costs are sustainable. The calculator above takes 30 seconds to use.
Enter your average purchase value, frequency, and lifespan to get your baseline CLV. Add your acquisition cost to see your CLV:CAC ratio. If it is below 3:1, you have two paths: reduce acquisition costs or increase CLV through higher order values, more frequent purchases, or better retention.
Ready to build a data-driven customer acquisition strategy? Contact JI Digital for expert marketing analytics and growth strategy.
Free tool by: John Isaacson, Digital Marketing Strategist
Last Updated: January 2026
