Calculate the customer lifetime value
Calculate the customer lifetime value
1. Divide your total annual revenue by the number of purchases made over that year to calculate the average value of a single purchase.
Annual Revenue / Number of Purchases = Avg. Value of a Single Purchase
2. Calculate your average purchase frequency rate by dividing the number of purchases per year by the number of unique customers.
For example, if 1,000 customers make 2,500 purchases in a given year, your average purchase frequency rate is 2.5%.
3. Multiply your average purchase value by your average purchase frequency rate to calculate your customer value.
Avg. Purchase Value x Average Purchase Frequency Rate = Customer Value
4. Find the average number of years a customer will make purchases from your company. This is your customer lifetime span.
5. Multiply the average customer value by the average customer lifespan.
This number is your Customer Lifetime Value, commonly known as CLTV. It tells you the average amount a customer will spend with you in their lifetime. For example, if your average customer value is $500, and they’re a customer for three years, your CLV will be $1,500.