How to Calculate Clv

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Customer Lifetime Value (CLV) Calculator

Estimated Customer Lifetime Value

function calculateCLV() { var aov = parseFloat(document.getElementById('aov').value); var freq = parseFloat(document.getElementById('frequency').value); var life = parseFloat(document.getElementById('lifespan').value); var margin = parseFloat(document.getElementById('margin').value); var resultContainer = document.getElementById('clv-result-container'); var resultDisplay = document.getElementById('clv-total'); var breakdownDisplay = document.getElementById('clv-breakdown'); if (isNaN(aov) || isNaN(freq) || isNaN(life) || isNaN(margin)) { alert("Please fill in all fields with valid numbers."); return; } // Formula: CLV = (AOV * Purchase Frequency * Customer Lifespan) * (Profit Margin / 100) var customerRevenue = aov * freq * life; var clvValue = customerRevenue * (margin / 100); resultDisplay.innerHTML = "$" + clvValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); breakdownDisplay.innerHTML = "Total Revenue over " + life + " years: $" + customerRevenue.toLocaleString() + "Net Profit per customer: $" + clvValue.toLocaleString(); resultContainer.style.display = 'block'; }

Understanding How to Calculate CLV

Customer Lifetime Value (CLV or LTV) is one of the most critical metrics for any business. It represents the total net profit a company can expect to earn from a single customer throughout their entire relationship with the brand. Understanding how to calculate CLV allows you to determine how much you should spend on customer acquisition (CAC) and which customer segments are the most profitable.

The Basic CLV Formula

To calculate the net CLV, we look at the revenue generated and multiply it by the profit margin. The standard formula used in this calculator is:

CLV = (Average Order Value × Purchase Frequency × Customer Lifespan) × Profit Margin %

Key Components Explained

  • Average Order Value (AOV): The average amount of money a customer spends every time they place an order.
  • Purchase Frequency: How many times a year the average customer buys from you. For a subscription service, this would be 12 (monthly).
  • Customer Lifespan: The average number of years a customer continues to buy from your business before they "churn" or stop purchasing.
  • Profit Margin: The percentage of revenue that is actual profit after accounting for Cost of Goods Sold (COGS), shipping, and fulfillment.

Example Calculation

Imagine you run a specialty coffee subscription business:

  • AOV: $30 per bag
  • Frequency: 12 times per year (once a month)
  • Lifespan: 2 years
  • Margin: 40%

First, calculate total revenue: $30 × 12 × 2 = $720.
Then, apply the margin: $720 × 0.40 = $288.

In this scenario, your CLV is $288. This means you could theoretically spend up to $287 to acquire this customer and still be profitable over the long term, though most businesses aim for a CAC (Customer Acquisition Cost) that is 1/3 of the CLV.

Why CLV Matters for Your Growth

By accurately calculating CLV, you can make data-driven decisions about your marketing budget. If your CLV is increasing, you can afford to spend more on ads to outbid competitors. If it is decreasing, it's a sign that you need to improve customer retention or find ways to increase your average order value through upselling and cross-selling.

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