The one-line definition
Customer Lifetime Value (CLV) is the total net revenue you can expect from a customer over the entire time they buy from you. It shifts the question from "what did this order earn?" to "what is this relationship worth?"
The simple formula
For most teams, a historical estimate is the right starting point:
- Average order value × purchase frequency per year × average customer lifespan in years
Example: a $84 average order, 3.2 orders a year, a 2.7-year lifespan and a 41% margin gives a CLV of roughly $297.
Where teams get it wrong
- Using one number for everyone. A blended CLV hides the fact that your top 20% of customers often carry most of the value. Segment first.
Historical vs. predictive CLV
Historical CLV looks backwards at what customers already spent. Predictive CLV uses models (BG/NBD, Gamma-Gamma, or gradient-boosted regressors) to forecast what each customer will spend. Predictive CLV is what lets you act early: bid more for look-alikes of high-value customers, or step in before a valuable account goes quiet.
How to put it to work
- Cap acquisition cost per channel at a fixed share of segment CLV (a 3:1 CLV-to-CAC ratio is a common guardrail).
Key takeaway
CLV is a decision metric, not a vanity metric. Start with a segmented historical estimate, include margin, and move to predictive CLV once the basic version is in use.