FormulaCLV = average order value x orders per year x years as a customer x gross margin

Customer lifetime value (CLV or LTV) estimates what a customer is worth to you from the first order to the last. Measured as gross profit, it tells you how much you can afford to spend to win that customer.

CLV changes how you read your ads. A first order that only breaks even can still be a good deal if customers come back. Stores selling products people use up, such as skincare, coffee or supplements, often plan around this.

Compare CLV with CAC, the cost of winning a customer. A common rule of thumb is to aim for a CLV at least three times your CAC.

  • Raise repeat purchases with email flows such as post-purchase and win-back messages.
  • Raise AOV with bundles and upsells.
  • Keep customers longer with good products, fast delivery and helpful service.

Common mistakes: using revenue instead of profit, assuming every customer stays as long as your best ones, and basing CLV on a few months of data from a new store. Start with a cautious estimate and update it as real repeat data comes in.