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What is the best definition of Customer lifetime value (CLV)?

Posted on by Jon Ane

By Jon Ane

The Customer lifetime value is the predicted net profit value related to a customer’s future activity.

There are several ways to calculate CLV. Here is an easy one:

Formula:

Annual profit contribution per customer (x) Average number of activity years (-)

the cost of customer acquisition

For instance:

  • Yearly Profit produced by the customer = 500
  • Years of predicted activity = 7 years
  • cost of customer acquisition = 300

The customer lifetime value of this customer would be:

(500 x 7)-300=3,200.

There are other ways to calculate CLV.

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