Omni Calculator logo

CLTV Calculator — Customer Lifetime Value

Created by Wei Bin Loo
Reviewed by Dominik Czernia, PhD and Steven Wooding
Last updated: Jan 18, 2024


With this CLTV calculator, we aim to help you calculate the customer lifetime value of your business. This metric can help you measure the worth of a customer to a company.

We have written this article to help you understand the CLTV definition and how to calculate the metric using the customer lifetime value formula. We will also demonstrate some practical examples to help you understand the concept.

What is customer lifetime value (CLTV)? Customer lifetime value definition

CLTV, short for customer lifetime value, is a metric that measures how much revenue a customer brings to a company throughout their time with the business. Essentially, this metric tells you how much each and every one of your customers is worth to your business. You can check out customer retention rate calculator to understand more on this topic.

This metric allows you to focus your effort on your most valuable customers. It also helps ensure you never overspend on your customer retention effort. With these two functions, applying this metric effectively can help you fully realize your business potential.

How to calculate the customer lifetime value — customer lifetime value formula

Now that you understand what CLTV is, the next step is to talk about how to calculate the customer lifetime value. Let's take Company Alpha with the information below as our customer lifetime value example:

  • Total revenue: $5,000,000
  • Number of purchases: 500,000
  • Number of customers: 200,000
  • Sum of customer lifespans: 300,000 years

We can calculate the CLTV in five steps:

  1. Determine the average purchase value.

    The average purchase value is the amount of revenue each purchase adds to the business on average. We can calculate it as follows:

    average purchase value = total revenue / number of purchases

    The average purchase value for Company Alpha is $5,000,000 / 500,000 = $10.

    Check out our present value calculator and revenue calculator to understand more about this topic!

  2. Determine the average purchase frequency.

    The average purchase frequency tells you how frequently a customer purchases on average. Its formula is:

    average purchase frequency = number of purchase / number of customers

    Hence, the average purchase frequency is 500,000 / 200,000 = 2.5.

  3. Calculate the average customer value.

    The average customer value is defined as how much a customer is worth to a business in a year. We can calculate this metric using the formula below:

    average customer value = average purchase value × average purchase frequency

    So, the Company Alpha's average customer value is $10 × 2.5 = $25.

  4. Determine the average customer lifespan.

    The next metric to calculate is the average customer lifespan. It tells you how long a customer stays with a business on average, and we calculate as follows:

    average customer lifespan = sum of customer lifespans / number of customers

    The average customer lifespans for Company Alpha is 300,000 years / 200,000 = 1.5 years.

    You can check out our time duration calculator to help with this calculation.

  5. Calculate the CLTV.

    The final step is to calculate the CLTV using the customer lifetime value formula:

    CLTV = average customer value × average customer lifespan

    Thus, the Company Alpha's CLTV is $25 × 1.5 = $37.5.

CLTV calculator in practice

After understanding what CLTV is and the customer lifetime value example, it's time to understand the CLTV's meaning and how to use the metric.

Firstly, although the higher the CLTV is generally better within a business, it is insensible to compare the CLTV between two different businesses.

Using the CLTV formula can help a business both in customer acquisition and customer retention. In customer acquisition, the average CLTV can tell you how much you should spend to acquire a customer. In customer retention, breaking down the factors that impact the CLTV can help you focus your effort at the weakest link to improve the company's profitability. For instance, if the low CLTV is due to a low average purchase frequency rate, you should focus your effort on making your customers buy more often from your business.

FAQ

How do I use the customer lifetime value equation?

You can calculate the CLTV in five steps:

  1. Determine the average purchase value.

  2. Determine the average purchase frequency rate.

  3. Calculate the average customer value.

  4. Determine the average customer lifespan.

  5. Apply the customer lifetime value equation:

    CLTV = average customer value × average customer lifespan

What is the difference between customer lifetime value and customer value?

The customer value is often defined as the revenue the customer contributes to the business in a year. However, the customer lifetime value takes into account customer lifespans and tells you the revenue customers contribute to a business over an extended time period.

Can the customer lifetime value model be used for all businesses?

Yes, the customer lifetime value model is extremely important to almost all businesses and industries. No matter if you are dealing with individuals or corporations, it is critical for a business to understand the value of their customers and formulate their strategy around it.

What is the customer lifetime value definition in digital marketing?

The customer lifetime value is the metric that informs you how valuable a customer is. In digital marketing, the CLTV is used to justify how much you should spend on marketing to a customer. If the customer's CLTV is $100, then you should not use any marketing effort to target that customer over $100.

What is CLTV for $25 customer value and 3 year lifespan?

The CLTV will be $75. You can calculate it by using this formula:

CLTV = customer value × lifespan = $25 × 3 = $75

How do I calculate average customer value?

You can calculate average customer value in three steps:

  1. Determine the average purchase value.

  2. Calculate the average purchase frequency (how many times the average customer makes a purchase in a year).

  3. Apply the average customer value formula:

    average customer value = average purchase value × average purchase frequency

Wei Bin Loo
Average customer value
Average purchase value
$
Average purchase frequency
Average customer value
$
Customer lifetime value (CLTV)
Average customer lifespan
yrs
CLTV
$
Check out 17 similar sales calculators 💸
Black FridayCheck digitCommission… 14 more
People also viewed…

BMR - Harris-Benedict equation

Harris-Benedict calculator uses one of the three most popular BMR formulas. Knowing your BMR (basal metabolic weight) may help you make important decisions about your diet and lifestyle.

CAPM (capital asset pricing model)

The CAPM calculator (capital asset pricing model) aims to determine the expected return of a particular asset or investment.

Chilled drink

With the chilled drink calculator, you can quickly check how long you need to keep your drink in the fridge or another cold place to have it at its optimal temperature. You can follow how the temperature changes with time with our interactive graph.

FHA loan

FHA loan calculator helps you estimate the monthly payments and total cost of financing your home with an FHA loan.
Copyright by Omni Calculator sp. z o.o.
Privacy, Cookies & Terms of Service