How to Calculate Customer Lifetime Value

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Customer Lifetime Value (CLV) Calculator

Results Summary:

Gross CLV: $0.00

Net Profit CLV: $0.00

Final CLV (After CAC): $0.00

function calculateCLV() { var val = parseFloat(document.getElementById('avg_purchase').value); var freq = parseFloat(document.getElementById('frequency').value); var life = parseFloat(document.getElementById('lifespan').value); var margin = parseFloat(document.getElementById('margin').value); var cac = parseFloat(document.getElementById('cac').value); if (isNaN(val) || isNaN(freq) || isNaN(life)) { alert("Please fill in the core purchase details (Value, Frequency, Lifespan)."); return; } margin = isNaN(margin) ? 100 : margin; cac = isNaN(cac) ? 0 : cac; // Gross Revenue per customer over lifetime var grossCLV = val * freq * life; // Profit generated over lifetime var profitCLV = grossCLV * (margin / 100); // Net profit after acquisition var netCLV = profitCLV – cac; document.getElementById('gross_clv_out').innerText = "$" + grossCLV.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('profit_clv_out').innerText = "$" + profitCLV.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('net_clv_out').innerText = "$" + netCLV.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); var roiMsg = ""; if (netCLV > 0) { var ratio = (profitCLV / cac).toFixed(2); roiMsg = "Your LTV:CAC ratio is approximately " + ratio + ":1. A healthy ratio for SaaS is usually 3:1 or higher."; } else { roiMsg = "Warning: Your Customer Acquisition Cost is higher than the profit generated. This model is currently unsustainable."; } document.getElementById('roi_message').innerText = roiMsg; document.getElementById('results-area').style.display = 'block'; }

Understanding Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV or LTV) is one of the most critical metrics for any business, whether you are in E-commerce, SaaS, or retail. It represents the total amount of money a customer is expected to spend in your business during their entire relationship with you.

Why Calculate CLV?

Knowing your CLV allows you to make informed decisions about how much you can afford to spend on marketing. If a customer is worth $1,000 to you over three years, spending $100 to acquire them (CAC) is a fantastic investment. However, if your CLV is only $50, that same $100 marketing spend would lead to bankruptcy.

The CLV Formula Used Above

This calculator uses a multi-layered approach to give you the most accurate picture of profitability:

  1. Gross Revenue CLV: Average Order Value × Purchase Frequency × Lifespan.
  2. Net Profit CLV: Gross Revenue × Profit Margin. (This accounts for the cost of goods sold).
  3. Final CLV: Net Profit CLV – Customer Acquisition Cost (CAC). (This tells you the actual bottom-line value of a customer).

3 Real-World Examples

Example 1: The Coffee Shop
A customer spends $5.00 per visit, comes in 50 times a year, and stays a customer for 5 years. Their Gross CLV is $1,250. With a 70% profit margin, their Profit CLV is $875.

Example 2: The SaaS Startup
A user pays $50/month ($600/year). They stay for 2 years on average. Margin is 90%. CAC is $200.
Gross: $1,200 | Profit: $1,080 | Final: $880.

Example 3: E-commerce Boutique
Average order is $120. Customers buy 2 times a year and shop with the brand for 3 years. Margin is 50%. CAC is $80.
Gross: $720 | Profit: $360 | Final: $280.

How to Improve Your CLV

  • Increase Purchase Frequency: Use email marketing and loyalty programs to bring customers back more often.
  • Boost Average Order Value (AOV): Implement upselling, cross-selling, and bundles at checkout.
  • Improve Retention: Provide world-class customer support to increase the "Customer Lifespan" (reducing churn).
  • Optimize Margin: Lower your cost of goods sold or operational overhead.

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