CLTV

Customer lifetime value (CLTV) is a metric used to estimate the net profit that a business can expect to earn from the entire future relationship with a customer. It measures profitability over the customer’s lifetime with the company, rather than a single transaction. CLTV can be expressed in terms of revenue or, more commonly, contribution margin after accounting for acquisition costs and other expenses.

Calculation methods vary in complexity. A simple approach multiplies the average order value by the purchase frequency and by the average customer lifespan: CLTV ≈ AOV × F × L. More advanced methods model expected future cash flows, using factors such as gross margin, retention or churn rate, discount rate, and varying purchase patterns over time. In predictive models, CLTV may be estimated by cohort analyses, engines that forecast repeat purchases, and probabilistic lifetime value techniques that account for uncertainty.

CLTV is used to guide strategic decisions. It helps determine how much to invest in acquiring customers (in relation to CAC), prioritize segments, allocate marketing and retention resources, and assess product or pricing strategies. A common metric is the LTV-to-CAC ratio, with higher values indicating more profitable customer relationships.

Limitations and considerations include reliance on historical data and assumptions about future behavior, which can change with market conditions, pricing, competition, or product changes. Accurate CLTV modeling requires clean data, clear attribution across channels, and ongoing validation to reflect updated trends and performance. CLTV remains a forward-looking estimate intended to support budgeting, experimentation, and long-term growth.