Try our Customer Lifetime Value Calculator

There are so many reasons why knowing your Customer Lifetime Value (CLV) is so important but some of the key reasons are:

• Helping you define how much to spend on customer acquisition
• Helping you track customer satisfaction - higher repeat business leads to higher CLV and indicates higher satisfaction
• Embedding customer satisfaction and repeat business into your processes changes your business model to one that is built for growth instead of single sales
• Making you more profitable and efficient - spend your funds in the right places
• Accounting for referrals which are often missed in the single sales approach

Your CLV is the average amount of money your customers will spend on your business over the entire lifetime of your relationship. For instance, simplistically put, if a customer continues to buy products or services from your business for 5 years and spends $10 per year, his or her customer lifetime value is $50, minus any money you spent to acquire that customer.

The danger of defining your customer value to a single purchase would be to undervalue the customer and therefore underserve. You could also be overserving a customer with a low CLV making them unprofitable in the long run. Practically speaking, when it comes to bidding on adverts if your competitors know their CLV they might be spending more to gain that customer, knocking you out the race.

Because we take into account the value of referrals. 'Oooooooh' we hear you say. Yes, we think so too.