Customer Lifetime Value (CLV)
Definition
Customer Lifetime Value (CLV) is the total amount of money a customer is expected to spend on your store throughout their entire relationship with your business.
It estimates how valuable a customer is beyond a single purchase.
Good or Bad?
Good?
- A high CLV means customers keep coming back, spending more over time.
Bad?
- A low CLV may indicate poor customer retention or low average order value.
Why does it matter?
- Helps you decide how much you can afford to spend on acquiring new customers.
- Allows you to focus more on retention and loyalty.
- Influences your marketing and pricing strategies.
Common Mistakes
- Only focusing on short-term revenue.
- Ignoring repeat customer behavior in analytics.
- Not segmenting customers by value.
How to Improve It?
- Offer loyalty programs or rewards for repeat purchases.
- Send personalized product recommendations.
- Improve post-purchase experience and support.
- Encourage subscriptions or bundles.
Recommended Plugin
Dynamic Pricing & Bulk Quantity Discounts
Encourage larger orders and repeat buying habits, which naturally increase CLV.
Real-World Example
A natural skincare brand noticed repeat buyers made up just 20% of orders.
By introducing bundle deals and post-purchase emails, they raised their average CLV by 35% in six months.
Related Terms
- Average Order Value (AOV)
- Repeat Purchase Rate
- Customer Retention
- Acquisition Cost
FAQs
How do I calculate CLV?
Multiply average order value by purchase frequency, then multiply by average customer lifespan.
Is CLV the same for all customers?
No. Different customer segments can have very different lifetime values.
Should I treat high CLV customers differently?
Yes. VIP treatment or exclusive offers can help retain your most valuable customers.
