What is customer lifetime value?
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Customer Lifetime Value (CLTV or LTV)

What is customer lifetime value? Customer lifetime value (CLTV or LTV) represents the profit a company expects to generate from an individual customer over the entire period of time they’re likely to stay engaged with the entity. This metric guides companies in estimating the investment they can justify for customer acquisition and retention strategies. To put it plainly, it’s not enough to have someone shop from your business just once. You want them to keep coming back. Knowing the average amount of money a customer spends with a business over their lifetime lets you see the value of the relationship that’s been created and how much it costs to maintain it.

How does customer lifetime value work? Measuring customer lifetime value involves assessing how much a customer spends on average in each purchase, the average number of purchases they make within a period (average purchase frequency), and how long they typically stay as a customer (average customer lifespan).

Types of customer lifetime value:

  • Actual CLTV: This is the actual amount of money a customer spends with a business over their lifetime.
  • Predicted CLTV: This is an estimate of the amount of money a customer is expected to spend with a business over their lifetime.

How to measure customer lifetime value: Calculating the average amount of money a customer spends on each purchase can be complex. The average purchase frequency is the average number of purchases a customer makes in a given period of time. The average customer lifespan is the average amount of time a customer remains a customer of the business.

Why is customer lifetime value important to marketers? CLTV provides insight into the profitability of customer relationships and is a key aspect to a brand’s retention efforts as well as their pricing strategies.

Who needs to know what customer lifetime value is:

  • Digital marketing manager
  • Paid search specialist
  • Social media manager
  • Content marketing manager
  • Affiliate manager
  • E-commerce manager
  • Product manager
  • Marketing analyst
  • Brand manager

Use customer lifetime value in a sentence: “Customer lifetime value isn’t created equal because it depends on factors like the industry you operate in, the type of product you sell, and how long customers stick around. But all markets need to compare it to CAC, the cost to acquire new customers; if CLTV is greater than CAC, your marketing is profitable.”