Glossary

Customer lifetime value (CLV)

The total net profit a business expects to earn from a customer over the entire relationship.

Also called: CLV, LTV, lifetime value

Customer lifetime value estimates how much a customer is worth to a business across the whole time they stay a customer, not just their next purchase. It is one of the central metrics in customer segmentation, since customers with very different CLV often deserve different treatment.

A simple version is CLV = average order value × purchase frequency × customer lifespan, often multiplied by gross margin to get a profit figure rather than a revenue figure. More rigorous versions are predictive, using a churn rate or survival curve to estimate expected lifespan and a discount rate to bring future profit back to present value. Historic CLV, based only on what a customer has already spent, is simpler but understates the value of newer customers who have not yet had time to spend.

CLV matters because it sets a rational ceiling on customer acquisition cost: a channel that costs more to acquire a customer than that customer will ever be worth is destroying value. Common pitfalls are projecting lifespan too optimistically, ignoring servicing and support costs when computing margin, and comparing CLV across channels or cohorts that were not computed with the same assumptions.

Last reviewed September 19, 2026

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Related terms

Churn rate The share of customers or revenue a business loses over a given period. Customer acquisition cost The average total sales and marketing spend required to acquire one new paying customer. RFM analysis A segmentation technique that scores customers on how recently, how often and how much they buy. Cohort analysis Grouping customers by a shared starting point, such as signup month, and tracking how their behavior diverges over time. Customer segmentation Dividing a customer base into groups that share meaningful traits so each can be targeted or served differently.

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