Customer Lifetime Value (CLV)
CLV can be calculated from historical contribution margin or predicted from revenue, purchase frequency, retention, and cost assumptions. It helps teams evaluate acquisition spending, customer segments, pricing, and retention investments. The model should state whether it measures revenue or profit, how long the horizon is, and which costs are included. CLV is an estimate, so sensitivity analysis is useful.
What is Customer Lifetime Value (CLV)?
Customer Lifetime Value (CLV) estimates the total economic value a customer is expected to generate over the full relationship with a business.
Why it matters
CLV can be calculated from historical contribution margin or predicted from revenue, purchase frequency, retention, and cost assumptions. It helps teams evaluate acquisition spending, customer segments, pricing, and retention investments. The model should state whether it measures revenue or profit, how long the horizon is, and which costs are included. CLV is an estimate, so sensitivity analysis is useful.
Example
A subscription company estimates that an average customer contributes $40 in monthly gross margin and remains for 24 months, giving a simple CLV estimate of $960.