Imagine this: You’ve got a marketing budget, and you’re trying to figure out how much to spend on ads, email campaigns, or promotions. But how do you know how much a customer is actually worth to your business in the long run?

This is where Customer Lifetime Value (CLV) comes in.

What Is Customer Lifetime Value (CLV)?

At its core, Customer Lifetime Value is the total amount of money a customer is expected to spend with your business over the entire course of their relationship with you.

It’s not just about what they spend on their first purchase – it’s about what they might spend on their next five, ten or twenty purchases.

For example, let’s say you run an online store selling coffee. 

Your average customer buys a £20 bag of beans every month for three years. 

In that case, their customer lifetime value is £720 (£20 x 12 months x 3 years). But if they only buy one bag and disappear, their customer lifetime value is just £20. Big difference, right?

Why Customer Lifetime Value Matters for Your Marketing

So, let’s talk about how this ties into your marketing.

Knowing your customer lifetime value helps you make smarter decisions about how much to invest in acquiring new customers. If you know a customer is going to spend £720 over their lifetime, you can afford to spend a lot more to get them in the door than if they were only going to spend £20.

Let me give you an example.

Let’s say you’re running Facebook ads to attract new customers, and your cost per acquisition (CPA) is £30. If you don’t know your customer lifetime value, that might seem high – especially if your average first purchase is only £20. 

But if you know that, on average, a customer stays with you for three years and spends £720, that £30 CPA suddenly looks like a great investment.

Here’s why this is powerful: Understanding customer lifetime value gives you the confidence to invest in the long game. You’re not just thinking about today’s sale – you’re thinking about the next one, and the one after that.

Customer Lifetime Value Helps You Avoid the Race to the Bottom

Without knowing customer lifetime value, you’re more likely to fall into the trap of trying to acquire customers as cheaply as possible. You might avoid spending more than £5 to acquire a customer because that feels safe – but in doing so, you could miss out on more valuable customers who are willing to spend much more over time.

By understanding customer lifetime value, you can focus on attracting high-value customers and stop worrying about making a profit on the first sale. Instead, you can plan for future revenue, upsells, and long-term loyalty.

How to Calculate Customer Lifetime Value

If you’re not already tracking customer lifetime value, here’s a simple formula to get you started:

1. Average Purchase Value: What’s the average amount of money a customer spends per transaction?
2. Purchase Frequency: How often do they buy from you (weekly, monthly, annually)?
3. Customer Lifespan: How long do they typically stay with your business?

Multiply these together, and you’ve got a basic customer lifetime value.

For example:

• Average Purchase Value: £30
• Purchase Frequency: 4 times a year
• Customer Lifespan: 3 years

Your customer lifetime value would be £360 (£30 x 4 x 3).

Customer Lifetime Value in Action: Two Business Examples

1. The Coffee Shop Example

Let’s say you own a small coffee shop, and your average customer spends £5 per visit. 

They stop by once a week for a cup of coffee and a chat. Over the course of a year, that customer spends £260 (£5 x 52 weeks). 

If they keep coming for five years, their customer lifetime value is £1,300.

Knowing this, you might feel more comfortable spending £50 or even £100 to acquire a new customer, because you know they’ll be worth much more in the long run.

2. The Online Course Example

Now, imagine you sell an online course for £200. Your average student only buys one course, so their customer lifetime value is just £200. 

In this case, you’d want to keep your cost per acquisition (CPA) low – maybe around £30 to £50 per customer – because you’re only making that one-time sale.

But what if you introduced more advanced courses, upsells, or even a subscription model? You could increase their customer lifetime value significantly, allowing you to spend more on acquiring new students without worrying about the initial cost.

How to Use Customer Lifetime Value to Drive Better Marketing Decisions

Once you know your customer lifetime value, you can use it to guide your marketing strategy in a few key ways:

1. Set Your Marketing Budget More Effectively

Now, imagine you sell an online course for £200. Your average student only buys one course, so their customer lifetime value is just £200. 

In this case, you’d want to keep your cost per acquisition (CPA) low – maybe around £30 to £50 per customer – because you’re only making that one-time sale.

But what if you introduced more advanced courses, upsells, or even a subscription model? You could increase their customer lifetime value significantly, allowing you to spend more on acquiring new students without worrying about the initial cost.

2. Focus on High-Value Customers

By tracking customer lifetime value, you can identify your most profitable customers and focus on attracting more of them. This might mean spending more on certain marketing channels to reach those high-value customers.

3. Adjust Your Offers and Pricing

If your customer lifetime value is lower than you’d like, you might consider offering subscription services, upsells, or loyalty programmes to boost repeat purchases and increase overall customer value.

The Bottom Line: Customer Lifetime Value = Smarter, More Strategic Marketing

When you know your Customer Lifetime Value, you have a roadmap for more efficient, profitable marketing. You stop guessing and start making decisions based on real data, which means you can spend confidently – knowing that you’ll see returns down the road.

If you’re not already calculating customer lifetime value, it’s time to start. And if you need help figuring it all out, let’s chat.

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