Acquiring new customers is only half the battle. Retaining them and maximising their long-term value is where real growth happens. That’s where Customer Lifetime Value (CLV) comes in. CLV is more than just a marketing metric; it’s a lens through which businesses can understand the true worth of each customer over time.
By accurately calculating and tracking CLV, companies can make smarter decisions on customer acquisition, retention, budgeting, and overall growth strategy.
We break down exactly what CLV is, how to calculate it, the key metrics to watch, and actionable strategies to increase it. Whether you're in marketing, sales, product, or finance, understanding CLV can help you unlock more sustainable growth.
What is Customer Lifetime Value (CLV)?
Customer Lifetime Value (CLV), also referred to as LTV or CLTV, is the projected revenue a business can earn from a customer throughout the entire duration of their relationship. It goes beyond individual transactions to encompass repeat purchases, average order value (AOV), and customer loyalty.
Understanding CLV helps businesses see the big picture of customer profitability, guiding smarter decisions in customer acquisition, retention, and marketing spend.
Why Understanding CLV Is Critical for Your Business
Customer Lifetime Value (CLV) shapes the overall growth strategy of online brands.
Here are the key benefits:
- Informed marketing investment: Knowing CLV helps determine how much to spend on acquiring and retaining customers.
- Customer retention strategies: High CLV customers are often the most loyal. Investing in them yields better ROI than chasing new, lower-value customers.
- Segmentation and prioritisation: CLV allows you to segment your customers and allocate resources where they’ll generate the most value.
- Predictable revenue streams: With an accurate CLV, you can forecast revenue more reliably.
How to Calculate Customer Lifetime Value (CLTV)
CLV = Average Order Value (AOV) × Average Purchase Frequency × Customer Lifespan
Step-by-Step Breakdown:
Average Order Value (AOV):
Total revenue ÷ Number of orders.
Average Purchase Frequency Rate:
Number of purchases ÷ Number of customers.
Customer Lifespan:
Average number of years (or months) a customer stays with the business.
Example:
If your AOV is $50, your purchase frequency is 4/year, and the average customer lifespan is 3 years:
CLV = 50 × 4 × 3 = $600
This means, on average, each customer is worth $600 over their relationship with your business.
CLV Metrics to Track Alongside
To accurately calculate and act on CLV insights, monitor these four key metrics:
Average Customer Relationship Duration
Helps determine the time horizon for revenue estimation.
Average Order Value (AOV)
A strong AOV increases overall customer profitability.
Average Purchase Frequency
Reflects customer engagement and loyalty.
Customer Acquisition Cost (CAC)
Needed to understand profitability per customer (CLV vs. CAC).
Healthy Ratio Benchmark: Aim for CLV:CAC = 3:1 or better.
How CLV Can Reduce Customer Acquisition Costs (CAC)
Understanding CLV can help optimise marketing spend and reduce CAC by:
- Identifying channels that bring in high-LTV customers.
- Justifying higher CAC for more profitable long-term customers.
- Informing the maximum allowable CAC based on expected lifetime revenue.
Dig Deeper:
- Repurchase Rate: % of customers who make a second purchase.
- Purchase Lag Time: How long it takes for a repeat purchase to occur.
- Customer Segmentation: Know who your best customers are and focus on acquisition.
By combining CLV with repurchase behaviour and purchase timelines, businesses can build smarter win-back campaigns and post-purchase funnels to retain customers.
Using Cohort Analysis to Improve CLV
What is Cohort Analysis?
Cohort analysis groups customers based on shared traits (like acquisition date, channel, or campaign) and tracks their behavior over time.
Benefits:
- Identify which acquisition sources yield the highest CLV.
- Detect seasonality effects, e.g., holiday shoppers may spend more.
- Monitor retention and churn rates per cohort.
- Refine your customer engagement strategies based on cohort trends.
💡 Action Tip: Use cohort insights to scale up successful acquisition campaigns and reallocate budget from underperforming ones.
How to Increase CLV on Shopify
Shopify merchants can take several actions to increase customer lifetime value:
1. Enhance Customer Experience
- Optimise website speed and usability.
- Use engaging product pages and streamlined navigation.
2. Personalised Recommendations
- Offer dynamic product suggestions based on purchase history or browsing behaviour.
3. Smooth Checkout Process
- Enable guest checkout, saved details, and one-click payments.
4. Post-Purchase Support
- Provide timely, helpful support to reduce buyer remorse and encourage loyalty.
5. Loyalty & Referral Programs
- Incentivise repeat purchases and customer advocacy.
💡 Pro Tip: Automate email flows such as reorder reminders, personalised offers, and loyalty rewards to keep customers engaged long-term.
Tracking LTV for Amazon vs. Shopify Customers
Expanding from Shopify to Amazon introduces complexity in tracking LTV across platforms.
Key Differences:
- Amazon often owns the customer relationship (limited access to buyer data).
- Shopify allows more control over marketing, data, and loyalty-building.
How LTV Helps:
- Compare customer quality across both platforms.
- Inform your advertising spend on each channel.
- Decide which product lines or categories perform better on each platform.
- Identify if Amazon acquisition brings in one-time buyers or long-term customers.
- Use LTV Reports to assess which platform yields higher profits and make data-backed channel investment decisions.
Why CLV is the Backbone of Sustainable Growth
Customer Lifetime Value is more than a number. It shapes everything from ad spend and product strategy to loyalty programs and customer service. Without understanding CLV, businesses risk overspending on low-value acquisition or under-investing in their most valuable customers.
Need a fresh perspective? Let’s talk.
At 360 OM, we specialise in helping businesses take their marketing efforts to the next level. Our team stays on top of industry trends, uses data-informed decisions to maximise your ROI, and provides full transparency through comprehensive reports.
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