How to Calculate Customer Lifetime Value & Increase It with Retention

Why is CLV important?

Customer Lifetime Value (CLV) indicates how much revenue and profit a typical customer brings to your business throughout their relationship with you. You can use this figure to decide how much to spend on customer acquisition, which segments to prioritize and which customer retention measures bring the best return. Use CLV to move from guesswork to predictable growth.

• Research shows that increasing customer retention rates by just 5% can increase profits by 25% to 95% – Bain & Company.
• In SaaS businesses, even a 1% improvement in retention can drive up to 12% more revenue over 24 months – Harvard Business Review.

1) What is CLV?

CLV is the total revenue (or profit) you can expect from an average customer over their lifetime with your brand. Think of it as the “value” that a typical customer represents to your business, not for that month, but for the entire relationship.

Simple formula:

CLV = Average Purchase Value × Purchase Frequency (per time period) × Average Customer Lifespan (in time periods).

(This version is used in most guides and tools because it is simple, transparent and actionable)

2) Two CLV formulas you should keep handy

A: Simple (Revenue CLV)

CLV = (Average Order Value) × (Average Number of Purchases per Year) × (average customer lifetime value in Years).

Use this formula when you need a quick revenue estimate.

B: Profit-focused (Net CLV)

Net CLV = (Average Order Value × Purchase Frequency × lifetime × Profit Margin) − customer acquisition cost (CAC).

This allows you to determine the true impact on profit and LTV:CAC decisions. (Many CRO/finance teams prefer this view)

3) Practical example – Calculate CLV (step by step)

Let’s run the numbers so there’s no guesswork.

Inputs (example):

• Average Order Value (AOV) = $50
• Purchases per year = 3
• Average customer lifetime = 4 years
• Profit margin = 40% (0.40)

Revenue CLV Calculation (step by step):

1. AOV × purchases per year = 50 × 3 = 150 (annual sales per customer).
2. Annual revenue × lifetime = 150 × 4 = 600 (lifetime revenue).

CLV (revenue) = 600 $.

Calculation of the net CLV:

1. Revenue CLV × profit margin = 600 × 0.40 = 240.

Net CLV (profit) = 240 $.

If you increase the average lifetime of 4 → 5 years (through customer retention):

• New revenue CLV = 150 × 5 = 750 → profit = 750 × 0.40 = $300.

That’s a profit increase of $60 per customer just by improving customer retention, small changes scale quickly (these step calculations follow the usual CLV methods used by marketing platforms and calculators)

4) Why customer retention increases CLV faster than acquisition

Increasing customer retention (lifetime and repeat purchases) increases CLV, while acquisition only increases upfront costs (CAC). For this reason, teams that invest in customer retention programs (loyalty, onboarding, lifecycle messaging) achieve above average returns. Industry resources show that practical CLV modeling and customer retention programs are the key to profitable, long-term growth.

5) Segment CLV – don’t average everything

The Average CLV hides the winners. Form the CLV per segment (by acquisition channel, cohort, product, region). This allows you to quickly recognize where you should invest (and where you can save unnecessary expenses). Use cohort tables and a simple spreadsheet to map CLV by month or year, other tools publish CLV calculators to help you with segmentation and modeling.

6) Tools, templates and calculators (start here)

• HubSpot CLV Calculators & Templates: downloadable CLV spreadsheets to plug in your numbers.
• Klaviyo CLV Methods: useful for e-commerce segmentation and net CLV calculations.
• Analytics platforms: Segment, Mixpanel, GA4 (for behavior) and your CRM (for revenue linking).
• Qualtrics / Khoros: use these for VoC, CX programs and retention strategy frameworks.

7) Quick CLV worksheet (copy to Excel / Google Sheets)

Columns to create: Customer ID | Acquisition Channel | AOV | Purchases per Year | Lifespan (Years) | Revenue CLV | Profit Margin | Net CLV | CAC | Net CLV minus CAC.

Use the formulas shown above and run a segment filter to find your cohorts with the highest CLV.

8) How to prioritize retention experiments

Use ICE (Impact × Confidence ÷ Effort) for tests that increase CLV the most:

• Rank ideas (onboarding, loyalty, win-back, cross-sell).
• Run the test with the highest score for 30 days.
• Measure the delta in purchase frequency or churn and recalculate the CLV.

9) Link CLV to revenue and budgets (what executives want)

Present CLV with an LTV:CAC ratio (target ~3:1 is a common recommendation) so executives can compare acquisition spend to retention revenue. Illustrating the dollar impact of 1% customer retention makes this real: multiplying smaller increases per customer by your active customer base shows a big impact on revenue.

10) Real next steps (30/60/90 day plan)

• 30 days: run CLV quick check (use spreadsheet), establish onboarding quick wins, set up basic win-back flow.
• 60 days: Start a small customer loyalty pilot, run NPS, segment VIPs.
• 90 days: Scale successful pilots, automate lifecycle communication, present CLV dashboard to executives.

11) Retention levers for a reliable increase in CLV

• Strong onboarding experience
• Personalized communication and offers
• Excellent customer support
• Loyalty and reward programs
• Continuous customer feedback loops
• Proactive engagement & check-ins
• Value-oriented upselling & cross-selling
• Customer education and self-service resources
• Building an emotional connection to the brand

Are you ready to move faster?

If you want a guided, practical way to apply these tactics, templates + calculators + playbooks included. Check out our Boost your Revenue with Customer Retention course. Melinda Emerson will walk you through CLV, customer retention programs and hands-on playbooks you can implement in a matter of weeks.

FAQs

What is a good ratio of CLV to CAC?

A common benchmark is 3:1 meaning that the lifetime value is approximately three times the cost of acquisition. Use this to check whether the acquisition spend is sustainable.

How often should I recalculate the CLV?

At least quarterly; for fast-growing companies or those testing customer retention, you should recalculate CLV monthly for cohorts.

What single tactic increases CLV the fastest?

Improving onboarding and reducing early churn – customers who experience their aha moment stay much longer.