*This calculator is a quick estimate if you wish for a more advanced calculation we suggest using CRM software and technology to track this moving number.
What is CLV
CLV or customer lifetime value is the total amount a customer will spend with your company over the lifetime that they are with you. This number helps you understand how much to invest to acquire a new customer. This also helps you understand how much you can invest in keeping the customer.
How to calculate CLV
To calculate CLV you will need the average amount of purchase and the number of times a customer buys per year. When it comes to the length of time a customer stays with you you can use CRM software to calculate your average or find the average for your industry.
CLV = average value of a purchase X number of times the customer will buy each year X average length of the customer relationship (in years)
For example, your store sells an average of $150 worth of product once a year but keeps customers for an average of 10 years. The CLV would then be:
CLV = $150 X 1 Year X 10 Years = $1,500.
It is also good to break out different products, not just your average CLV. If you had work boots vs. running shoes you could calculate who spends more.
Running shoes for marathon runner:
$100 per pair X 4 Shoes per year X 8 Years = $3,200
Work Boots for Warehouse worker:
$150 per pair X 1 Pair per year X 10 Years = $1,500
It is better for you to spend more to acquire a runner than a warehouse worker.
Why does CLV matter
Your CLV lets you understand:
- How much is safe for you to spend to acquire a customer
- What products produce the highest lifetime profits
- Who your profitable clients are
How to Boost Your CLV
It is important to keep your CLV higher than the cost it is to acquire the customer.
Selling more to a customer is much more likely than acquiring a new one. The industry average is 60% to 70% higher.
Here are a few tips to get more products to your customers.
- Send out new product updates to an email list of people interested or who have purchased a similar product
- Make returns easy especially for online shopping, making a return difficult makes it less likely a shopper will return to your store
- Set clear delivery dates and make sure you can meet them or keep the customer informed
- Use a reward program to keep customers coming back
- Offer free items for greater purchases being made or coupons following each purchase
- Use upsells at the end of purchase to increase the amount spent this could be quick grabs at a till or suggested items at the cart step
- Stay in touch with your customers so they don’t feel forgotten