CLV estimates a customer’s total worth: average order value times purchase frequency times the customer lifespan (and margin for profit). It sets how much you can spend to acquire.
The example
$80 AOV, 3/yr, 4 years.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | AOV × freq × years | — |
| 3 | 80 × 3 × 4 | → $960 |
The formula
The formula:
How it works
How it works:
- Multiply AOV × purchase frequency × lifespan for lifetime revenue.
- Multiply by gross margin for lifetime profit — the figure to compare with CAC.
- Estimate lifespan from repeat/churn:
1 / (1 - repeat_rate). - A healthy CLV : CAC ratio is often 3 or more.
CLV sets the acquisition budget. If lifetime profit is $384 ($960 revenue × 40% margin) and you target a 3:1 CLV:CAC, you can spend up to ~$128 to acquire a customer. CLV without margin overstates what you can afford — always compare profit CLV to CAC, not revenue CLV.
Try it: interactive demo
AOV, orders/year, lifespan, margin.
Variations
Profit CLV
× margin:
Lifespan from repeat rate
Expected years:
Max CAC at 3:1
Spend ceiling:
Pitfalls & errors
Profit, not revenue, vs CAC. Multiply by margin before comparing to acquisition cost.
Lifespan is an estimate. Derive it from repeat/churn, not a guess.
Discount long horizons. Far-future value is worth less today.
Practice workbook
Frequently asked questions
How do I calculate customer lifetime value in Excel?
How do I get profit CLV?
How much can I spend to acquire a customer?
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