CLV (Customer Lifetime Value)

What is Customer Lifetime Value?

Customer Lifetime Value (CLV, also known as LTV) estimates the total value a customer brings to your business over the course of their entire time as a customer. This includes all purchases from the first order to the last.

CLV is important because it helps you determine the right cost of customer acquisition. If your average CLV is 3,000 DKK and your profit margin is 40%, you know that you can invest up to 1,200 DKK in acquiring a new customer and still remain profitable.

How to Calculate CLV

The simplest formula:

CLV = Average Order Value × Average Number of Purchases per Year × Average Customer Lifetime (years)

Example: If your average order value is 500 kr., customers buy 3 times a year, and the average customer is active for 2 years:

CLV = 500 × 3 × 2 = 3,000 DKK

CLV Across Different Industries

• Consumer goods (coffee, cosmetics): High CLV due to frequent repeat purchases over a long period
• Fashion and apparel: Moderate CLV—seasonal purchases with variable loyalty
• Electronics: Lower CLV—more expensive one-time purchases but less frequent repeat purchases
• Niche stores: Can have a high CLV if the customer base is loyal and engaged

Why is CLV important?

• Marketing budget: CLV tells you how much you can spend to acquire a new customer (CAC— Customer Acquisition Cost). Rule of thumb: CLV should be at least 3× your CAC.
• Customer segmentation: Identify your most valuable customer segments and focus resources on attracting and retaining similar customers.
• Profitability Assessment: Not all customers are equally profitable. CLV analysis can reveal that specific channels or product categories attract more valuable customers.
• Retention vs. Acquisition: If CLV analysis shows that repeat customers are significantly more profitable than new ones, you should invest more in retention.

How to Increase CLV

• Increase the Repurchase Rate: Email marketing, loyalty programs, and personalized offers encourage customers to return.
• Increase order value: Upselling, bundling, and free shipping thresholds increase the average order value.
• Reduce churn: Identify customers who are at risk of churning and re-engage them with win-back campaigns.
• Improve the customer experience: Excellent customer service, fast delivery, and an easy returns process build loyalty.
• Personalization: Relevant product recommendations and segmented newsletters increase engagement and repeat purchases.