CLTV formula

What is the CLTV (customer lifetime value) formula?

The CLTV formula helps businesses estimate the total revenue they can expect from a customer throughout their entire relationship with the brand. It takes into account how much a customer spends per order, how frequently they make purchases, and how long they remain loyal. This calculation shifts the focus from one-time sales to long-term value. By understanding CLTV, businesses can make smarter decisions about marketing spend, customer retention, and overall growth strategy.

How to calculate customer lifetime value?

To find CLTV, you can use this simplified CLTV formula:

CLTV = Average Order Value × Purchase Frequency × Customer Lifespan

Here’s what each part means:

• Average Order Value (AOV) is the average amount a customer spends per transaction.
• Purchase Frequency is how often a customer buys from you in a given time period.
• Customer Lifespan is the average length of time a customer stays active with your brand.

Why is CLTV important?

Knowing your CLTV helps you:

• Determine how much you can afford to spend on acquiring new customers (CAC)
• Improve customer retention strategies
• Identify high-value customer segments
• Increase profitability through better targeting and upselling

For example:

If AOV = $50, Purchase Frequency = 4 per year, and Customer Lifespan = 3 years:
CLTV = $50 × 4 × 3 = $600

This means each customer is expected to generate $600 in revenue over their lifetime.

Driftcharge Tip

Improving CLTV isn’t just about increasing purchases, it’s about delivering consistent value, improving customer experience, and reducing churn through smart retention tactics.

Ganesh Pawar

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Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.