Calculate Customer Lifetime Value and Boost Your Marketing ROI
Understand your customers' long-term worth and refine your marketing strategies for sustainable success.
In today’s competitive market, attracting new customers is only half the battle – the real challenge lies in keeping them and maximising their value over time. This is where Customer Lifetime Value (CLV) comes in.
But what is Customer Lifetime Value?
CLV measures the total profit a customer generates throughout their entire relationship with your business. Unlike metrics that focus on individual transactions, CLV offers a comprehensive view of customer value, helping you see beyond just the first or last click.
Understanding CLV enables you to identify high-value customers, make data-driven decisions on where to allocate resources, and refine your marketing strategies. You’ll know which customers are worth your investment, how to improve retention, and which channels deliver the most valuable customers. In short, CLV is the key to optimising your Return on Marketing Investment (ROMI) and achieving sustainable growth.
Let’s break down how to calculate CLV, why it’s essential, and how to apply it to your marketing strategy.
How to Calculate CLV
Calculating CLV requires three key data points: the customer lifetime, annual profit per customer, and the acquisition cost. Here’s a straightforward formula:
CLV = Customer Lifetime × Annual Profit – Acquisition Cost
Let’s illustrate this with an example.
Imagine a subscription business that delivers monthly wellness products. They spend 500 DKK annually to acquire a customer. On average, customers generate 1,500 DKK in profit each year and stay subscribed for 5 years. Plugging these numbers into the formula:
CLV = (5 years × 1,500 DKK) – 500 DKK = 7,000 DKK
This means each customer is worth 7,000 DKK over their lifetime.
With this insight, the business can confidently decide how much to invest in acquiring new customers and keeping existing ones happy.
Why Churn Rate is Crucial for CLV
Now, how did we determine the customer lifetime of 5 years? This is where the Churn Rate comes in. The churn rate is the percentage of customers who cancel their subscription within a given period. In this example, if the churn rate is 20% per year, the average customer lifetime is:
1 / 0.20 = 5 years
Understanding your churn rate helps you accurately calculate customer lifetime, which is essential for determining CLV. A lower churn rate means customers stay longer, increasing their lifetime value and boosting your overall profitability.
By monitoring churn and working to reduce it, you can extend customer lifetimes and maximise CLV – making your marketing investments more effective.
Use CLV to Guide Your Marketing Strategy
Understanding Customer Lifetime Value (CLV) can revolutionise the way you approach marketing. Studies show that increasing customer retention by just 5% can boost profits by 25% to 95%. By knowing your CLV, you can make more strategic decisions to drive long-term growth.
Focus on keeping your best customers longer by improving their experience, offering personalised incentives, and maintaining strong relationships.
Invest in the channels that attract high-value customers and avoid wasting budget on low-return activities.
Identify which touchpoints along the customer journey contribute most to loyalty and sales, ensuring you give credit where it’s due.
Understand Where Value Comes From with Attribution Models
To maximise CLV, you need to know which marketing channels are driving your most valuable customers. Attribution models help distribute credit across these touchpoints. For example, a customer might discover your brand through a Google search, click a Facebook ad, and return directly to complete a purchase. Which channel should get the credit?
Tools like Google Analytics provide predefined, static attribution models to help answer this question. By comparing different models and analysing multi-channel funnel reports under the Conversions section, you get a clearer view of your customer journey and know where to focus your efforts.
For a more accurate and dynamic picture, machine learning-powered attribution models (like those used by IMPACT Commerce) offer deeper insights. This helps you confidently allocate value to the right channels and make smarter budget decisions.
Want to see our attribution model in action?
Turning CLV Insights into Action
Understanding your CLV isn’t just a theoretical exercise – it’s a powerful tool for growth. By knowing which customers are your most valuable, you can refine your marketing strategy, improve customer retention, and allocate your budget more effectively. CLV helps you make smarter, data-driven decisions that lead to long-term success.
When you know your CLV, you know where to invest, who to retain, and how to grow. If you’re ready to take your CLV analysis to the next level and make your marketing investments count, we’re here to help.
Curious how CLV can refine your marketing strategy?
Get in touch and discover how to turn customer insights into smarter marketing strategies that boost retention, optimise your marketing spend, and drive sustainable growth.
