Customer Lifetime Value (CLV) Formula
Customer lifetime value (CLV) estimates the total profit a customer generates over the whole relationship, not just the first sale. It tells you how much you can afford to spend acquiring a customer and still come out ahead.
The formula
Hardware CLV across n upgrade cycles: gross profit per device weighted by per-cycle retention. Each successive cycle contributes less because some customers churn.
What goes into it
- Gross profit per device (GP)
- Per-cycle retention rate
- Number of upgrade cycles (n)
Worked example
Chapter 21's Samsung-vs-iPhone comparison across 3 upgrade cycles:
| Gross profit / device (GP) | $400 |
| Loyalty / cycle | 76% |
| Cycles (n) | 3 |
| CLV | ≈ $933 |
| Gross profit / device (GP) | $550 |
| Loyalty / cycle | 89% |
| Cycles (n) | 3 |
| CLV | ≈ $1,478 |
Simple vs. loyalty-decay CLV
The simplest CLV is average margin per period × expected customer lifespan. The more accurate version, used by the calculator below, discounts each future period and applies a retention (loyalty-decay) rate, since customers who stay longer are worth more but later revenue is worth less today.
Why it matters
Compare CLV against customer acquisition cost (CAC). A healthy business keeps CLV well above CAC; if acquisition costs approach lifetime value, growth is buying revenue at a loss.
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