What is customer lifetime value? CLV and LTV explained
Customer lifetime value, or CLV, is the total value a business expects from one customer over the whole relationship. Here is what CLV means, how to calculate it for ecommerce and subscriptions, a worked AED example and how it connects to CAC.
Customer lifetime value, also called CLV or LTV, is the total value a business expects to earn from one customer over the whole relationship. Most teams measure it in gross margin rather than revenue, so it can be compared directly with customer acquisition cost. It tells you how much you can afford to spend to win a customer.
How do you calculate customer lifetime value?
| Business model | Formula |
|---|---|
| Ecommerce | Average order value × orders per year × gross margin × years retained |
| Subscription | Monthly revenue per customer × gross margin ÷ monthly churn rate |
The subscription version works because 1 ÷ monthly churn approximates the average customer lifetime in months. Both are simple models. Cohort analysis, which tracks what real groups of customers spend over time, is more accurate once you have a year or two of data.
Customer lifetime value example
Illustrative figures for a UAE coffee subscription and an online pharmacy:
- Coffee subscription: AED 150 a month, 60% gross margin, 5% monthly churn. CLV = 150 × 0.60 ÷ 0.05 = AED 1,800.
- Pharmacy: AED 220 average order, 4 orders a year, 30% gross margin, customers stay 3 years. CLV = 220 × 4 × 0.30 × 3 = AED 792.
With a CAC of AED 400 for both, the subscription returns 4.5 times its acquisition cost and the pharmacy about 2 times.
What is a good customer lifetime value?
CLV has no good value on its own. It only means something next to what it costs to win the customer, which is why teams track the LTV to CAC ratio and the CAC payback period. You raise CLV by improving retention, order frequency, average order value or margin.
Related terms
- CAC: the cost side of the same equation.
- Churn rate and customer retention rate: the biggest drivers of customer lifetime.
- Contribution margin: a stricter alternative to gross margin that also removes shipping, payment fees and returns.
How Grower helps
Grower's web analytics covers users, traffic, engagement and e-commerce, and connecting a mobile attribution partner brings installs and in-app revenue into the same view. Set that revenue against CPA by channel from the channels leaderboard to see which sources bring valuable customers.
Frequently asked questions
Is CLV the same as LTV?
Yes. CLV, LTV and CLTV all mean customer lifetime value. SaaS teams tend to say LTV, while retail and ecommerce teams often say CLV. The method matters more than the name: some calculate it on revenue, others on gross or contribution margin. Margin-based CLV is the one to compare with CAC, so state which you use.
Should CLV use revenue or margin?
Margin, whenever you compare it with acquisition cost. A customer who spends AED 5,000 at a 20% margin is worth AED 1,000 of gross profit, and that is the most you could spend acquiring them before losing money. Revenue-based CLV is fine for segmentation, but it overstates what you can afford to pay for customers.
How do you increase customer lifetime value?
Keep customers longer and make each one more valuable. Reduce churn with onboarding and service, raise purchase frequency with email, CRM and replenishment reminders, lift order value with bundles and thresholds, and protect margin by limiting blanket discounts. Track CLV by acquisition channel, since some channels bring customers who buy once and never return.
Compare lifetime value with what you pay to acquire customers using the free CAC payback calculator.