CLTV (Customer Lifetime Value)

Customer Lifetime Value (CLTV) is an estimate of the total amount a customer will spend on a company's products or services throughout their relationship with the company. This metric is essential for understanding the long-term profitability of a customer. A high CLTV means the customer generates more revenue for the company over time.

How does CLTV work?

CLTV is calculated by multiplying the average value of a customer's transactions by the purchase frequency and by the average duration of the customer relationship. For example, if a customer spends an average of €50 per month and stays loyal for 3 years, the CLTV will be €1,800 (50 € x 12 months x 3 years).

Concrete example

Imagine you run an online subscription service where each customer pays €20 per month. If, on average, your customers remain subscribed for 2 years, the CLTV for each customer will be €480 (20 € x 12 months x 2 years). This means that, over the course of the relationship, each customer brings you an average of €480.

Why is CLTV important?

CLTV is a key indicator for a company's profitability. Knowing your CLTV helps you better understand how much you can spend to acquire new customers while remaining profitable. If your customer acquisition cost (CAC) is lower than your CLTV, your business is in a good position. If CAC exceeds CLTV, it means acquiring customers costs more than they bring in over the long term, which is a potentially worrying sign.

Want to optimize your customers' CLTV?

If you want to improve your customers' CLTV or learn more about how to calculate and optimize it, contact us via the contact form on our website. We will be happy to help you maximize your customers' long-term profitability.