CLTV Calculator — Customer Lifetime Value

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.

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.

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.

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.