Customer Lifetime Value (CLV)


This is a calculation of the total value of a customer over their entire journey with a brand. This can be calculated by looking at the total amount a customer has paid, subtracting the gross margin, and dividing by the churn rate (or cancellation rate) for that customer.


Customer Lifetime Value (CLV) =
(Purchase Frequency [PF] × Average Order Value [AOV] × Gross Margin [GM] × Customer Lifespan [CL]) /
Number of New Customers

Note: This was adapted from the Omniconvert blog


  • Purchase Frequency (PF): This is how often the average customer makes a purchase from you. Choose a measurement for frequency that makes sense for your business. For instance, a car manufacturer and a quick service restaurant are going to have different time frequencies that make sense. The former might be in years and the latter in weeks.
  • Average Order Value (AOV): This is the average amount a customer spends with your brand.
  • Gross Margin (GM): This helps you calculate the amount of profit you make on each order, and gets to a much more accurate number than simply using the Average Order Value (AOV) as your measurement of how much you make from the average customer.
  • Customer Lifespan (CL): Again, make sure to make this in the same unit of measurement of your purchase frequency (weeks, months, years).
  • Number of New Customers: This is the number of new customers you gain within the same unit of frequency chosen for purchase frequency and customer lifespan.




Book: House of the Customer (2023) by Greg Kihlström