How to calculate customer lifetime value? (formula)

[Mike Taylor]

How to calculate customer lifetime value? (formula)

[John Morris]

There are several different approaches to calculate the customer lifetime value (CLV). They depend on which data you use. And every way is differed by accuracy and complexity.

The simple customer lifetime value formula is:

CLV = APC * ACL - CAC

APC - annual profit contribution per customer
ACL - average customer lifetime
CAC - cost to acquire the customer.

Another simple formula:

CLV = AOT * ANP * ART

AOT - Average order total
ANP - Average number of purchases in a year
ART - Average retention time in years.

Customer lifetime value helps you to understand which of your customers or sales channels are more profitable. Also, you can use CLV to classify customers by importance and allocate them to groups and customize marketing strategy for each one. This is a key indicator in planning customer retention strategy.