What factors influence CLTV?

CLTV is influenced by retention rate, average order value, purchase frequency, and margins. Strategies like loyalty programs and upselling can improve CLTV.

Can CLTV vary by customer segment?

Yes, CLTV differs by customer segments such as acquisition channel, geography, and behavior. Segmentation helps in targeted marketing and better resource allocation.

How does churn rate affect LTV?

Higher churn rate shortens customer lifespan, reducing LTV. Improving retention can significantly increase CLTV over time.

Customer Lifetime Value (CLTV) Explained

What is Customer Lifetime Value (CLTV)?

Customer Lifetime Value (CLTV) is the total revenue a business expects to earn from a customer throughout their entire relationship. It helps businesses calculate the per customer profitability in the long run and guides decisions in marketing, sales, and customer success.

How to calculate CLTV?

CLTV can be calculated by multiplying ARPU with Average Customer Lifespan (in months). You can also calculate CLTV by multiplying APV (Average Purchase Value) with PF (Purchase Frequency) and CL (Customer Lifespan).

Steps to Calculate CLTV

Step 1:

Calculate Average Purchase Value:
Average Purchase Value = Total Revenue / Number of Purchases

Step 2:

Calculate Average Purchase Frequency:

Average Purchase Frequency = Number of Purchases / Number of Unique Customers

Step 3:

Calculate Customer Value:

Customer Value = Average Purchase Value × Average Purchase Frequency

Step 4:

Calculate Average Customer Lifespan:

This is the average duration (in months or years) a customer stays active with your business.

Step 5:

Calculate CLTV:

CLTV = Customer Value × Average Customer Lifespan

Formula to calculate CLTV

CLTV= ARPU x Customer Lifespan (in Months)

CLTV= APV x PF x CL

Benchmark for CLTV

The general ideal CLTV benchmark for SaaS companies would be: 3-5 times of CAC (Customer Acquisition Cost).

Related Metrics for CLTV

Customer Acquisition Cost:
Churn Rate:
Retention Rate:
Average Revenue Per User:

Want to Maximize Customer Value? Talk to Us!

Discover how to use CLTV for smarter growth strategies — Learn with DiGGrowth at info@diggrowth.com — we’ll get back to you promptly.

FAQ's

Several key elements impact LTV, including customer retention, average order value, purchase frequency, and product margins. Improving any of these can increase LTV. For example, better onboarding or loyalty programs may extend a customer's lifespan; while bundling or upselling can increase average revenue.

Absolutely. LTV often varies widely across customer cohorts, by geography, acquisition channel, company size, or behavior. Segmenting LTV allows for smarter budgeting, pricing, and targeting strategies, ensuring resources are directed toward high-value customer groups.

Churn rate has a direct inverse relationship with LTV. The faster customers churn, the shorter their lifespan, and the lower their total value. Even small improvements in retention can lead to significant increases in LTV, making churn management a key lever for growth.