Customer Lifetime Value (CLTV) Calculator
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The CLTV calculator makes it easy to determine your customer’s lifetime value. To use the calculator, you will need some key data about your customers:
- Average purchase value: Add together the value of all of the purchases that your customers made over a particular time period, then divide that by the number of customers purchases.
- Average purchase frequency: Using that same time period, divide the number of purchases made by the number of individual customers who made a purchase.
- Customer value: Multiply the average purchase frequency by the average purchase value.
Average customer lifespan: Calculate the average length of time that customers return and continue to make purchases from your business.
Frequently asked questions
CLTV is a monetary value that predicts what you can expect a customer to spend with your business during their lifetime. This is a valuable metric that can help you determine how well your business is performing and to better strategize to build your business’s profits and retain customers.
You can use your CLTV to evaluate your customer acquisition strategy. When you know how much you can reasonably make from a single customer, you can better understand how much you should spend to acquire that new customer.
The customer lifetime value calculator multiplies your customer’s value by the average customer lifespan. This CLTV formula results in your customer lifetime value.
If your business had a customer value of $150 and an average customer lifespan of three years, then using the calculation of customer value multiplied by customer lifespan means that your CLTV is $450. This information can help you evaluate your marketing efforts and your marketing spend. You can verify that the amount of money you’re spending on marketing is justified by the revenue that you stand to receive from your customers over that period of time.
You can improve CLTV in many ways:
- Ask for existing customer feedback to improve your retention rate.
- Implement personalized customer service to encourage customer retention.
- Optimize the customer journey and focus on overall customer satisfaction.
- Focus on providing a quality customer experience to encourage brand loyalty.
- Develop customer relationships and focus on providing personalized touches and engagement.
- Evaluate your pricing and offer perks and discount rates to encourage customer loyalty.
- Teach your staff how to upsell and explore cross-selling to increase profit margins and your average order value.
- Investigate when and why your customer base leaves, so you can reduce your churn rate.
- Use customer segments to deliver more personalized marketing for a stronger connection to your business.
- Make top-quality customer support a pillar of your business to increase the average customer lifetime.
- Focus on new marketing strategies to lower your customer acquisition cost while increasing the number of customers your business has.