What is Customer Lifetime Value (CLV)?
Lifetime Value (LTV) or Customer Lifetime Value (CLTV) is the gross profit a customer delivers to your business in their lifetime. It’s the amount of revenue your business will make from a customer over their average lifetime as a customer.
How to Calculate Customer Lifetime Value (CLV)?
CLTV = [Average Revenue Per User or Unit (ARPU) X Gross Margin] X Customer Lifetime
Customer Lifetime Value (CLV) Examples
Example:
Your average customer pays your business $50 per month (ARPU).
- It costs your business $10 to deliver your product to the customer. You may know this as the Cost of Goods Sold (COGS).
- Your average customer lifetime is 18 months.
Therefore, your business CLTV is $720 or ($50 APRU – $10 service cost) X 18 customer lifetime.
Example:
Your average customer pays your business $25,000 per year (ARPU).
- It costs your business $10,000 to deliver your product to the customer.
- Your average customer lifetime is 4.5 years.
Therefore, your business CLTV is $67,500 or ($25,000 APRU – $10,000 service cost) X 4.5 customer lifetime.
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