Customer Lifetime Value: Why It Matters and How To Calculate It

Marketing 20 minute read 2nd January 2023

If you’re a business owner, chances are you’ve heard about Customer Lifetime Value. But what is it exactly, and why does it matter? This article is going to show you what it is and why it matters to create a thriving and competitive business.

Additionally, you will find a few useful tips to increase the Lifetime Customer Value of your business by growing loyalty as well as profits.

Let’s start with the basics. What exactly is meant by Customer Lifetime Value?

What Is Customer Lifetime Value

lifetime customer value

If you are wondering what is meant by Customer Lifetime Value, you are asking yourself the right questions. In fact, the concept of Customer Lifetime Value (CLV or LCV) is essential for businesses to increase their revenue and maintain a successful business model.

LCV is the total sum of money that a customer is expected to spend on a product or service over their lifetime as a customer. In other words, it is a number that tells you how much a customer will spend on your business throughout its entire lifespan.

Customer Lifetime Value is the result of loyalty, customer retention strategy, branding, and sales techniques. Given its importance, all types of businesses spend resources to find ways to optimize and grow their customers’ lifetime value. But why is it so important?

The Importance of Customer Lifetime Value

lifetime customer value

The importance of Customer Lifetime Value for businesses can be seen from multiple perspectives. Fundamentally, it helps organizations identify, measure, and maximize the economic value of customers over a period of time.

At its core, Customer Lifetime Value is a predictive measure of how much revenue and profit a customer will generate for a business during their entire relationship. Therefore, knowing this information can help businesses make better decisions about marketing strategies, product development, pricing structures, customer service quality, and more.

Customer Lifetime Value is also important to take better financial decisions, especially when it comes to strategies to win new customers.

However, the average Customer Lifetime Value differs across industries. Moreover, in a few industries is quite easy to measure LCV as data are easy to gather (like e-commerce), while in others is relatively hard and, at best, you can have an educated guess.

How To Calculate the Lifetime Value of a Customer

lifetime customer value

When it comes to calculating the lifetime value of a customer you need to gather data on customers’ purchase histories, frequency of purchase, and other elements to determine how likely customers are to continue buying from you over time. Understanding the typical length of relationships between customers and businesses can also help you get to a more solid and reliable number.

Unfortunately, though, sometimes is not possible to calculate the customers’ lifetime value for the simple fact that you don’t have enough data or those data are not reliable. Moreover, there are businesses that do not cultivate long-term relationships with their customers. Therefore a metric like the LCV would be pointless. In that case, there are other valuable loyalty metrics to take into account to evaluate how profitable a business is.

Let’s now have a look at the Customer Lifetime Value formula.

Customer Lifetime Value Formula

The Customer Lifetime Value formula is quite straightforward. However, the quality of the result will depend on the amount of data you can gather, and how reliable they are.

To calculate your CLV, you need to compute your customers’ average purchase value, the average purchase frequency, and the average customer lifespan.

lifetime customer value

If you can reliably gather these pieces of data, then you can calculate the Customer Lifetime Value of any business. However, if the business you are analyzing had important structural changes, you should take them into account. Moreover, if your audience is diversified (e.g. Millennials, Gen Z, etc.) you can calculate your Customer Lifetime Value by segment and get more useful insights.

Average Customer Lifetime Value by Industry

Since every business has a different cost structure and business model, it’s very tricky to find reliable data about the average Customer Lifetime Value by industry.

Moreover, these types of financial information are not easily shared by business owners and companies for multiple reasons. Therefore, if you want to know the average Customer Lifetime Value in a specific industry, you’ll need to calculate it yourself considering the best data you find.

However, in the following list, you can find a few examples of LCR, which is the customer lifetime revenue in a few industries. The difference between LCR and LCV is that the former is a gross number that takes into account mostly the total revenue.

  • HVAC Company - $47,200
  • Business Operations Consulting Firm - $385,000
  • Digital Design Firm - $91,000
  • Financial Advisory Firm - $164,000
  • Commercial Insurance Company - $321,000
  • Healthcare Consulting Firm - $328,600

Data from

12 Tips To Increase the Customer Lifetime Value of a Business

According to Harvard Business Review, acquiring new customers can be up to 25 times more expensive than retaining an old one. That is also why you should understand and calculate the average Customer Lifetime Value of your business.

A satisfying LCV is the result of retention strategies as well as sales techniques. To make your life easier, following you will find 12 tips to increase the Customer Lifetime Value of your business, regardless of the industry you are working in.

Tip #1 To Increase Customer Lifetime Value - Learn About Your Customers

Learning about your customers is probably the most important thing to grow your Customer Lifetime Value. In fact, when you know what your customers need and love, you will be able to provide it more easily and you won’t misallocate resources.

Therefore, be sure to understand thoroughly your customers. One of the best ways for learning about your customers is by reading reviews. Therefore, start doing it.

Tip #2 To Increase Customer Lifetime Value - Make Bundles

Creating bundles is a great method to increase the Customer Lifetime Value of a business. A bundle is a cluster of products that get together well and might be desired by your customers. Offering a bundle of products is common in most industries; think of burger + fries + drink or PS4 + 2 joystick + FIFA. The reason why bundling is so common across industries is that a bundle is perceived more conveniently by customers. If you are not offering your customers any type of bundle, give it a try and see if it works for you.

Tip #3 To Increase Customer Lifetime Value - Upselling

Upselling is a sales technique used to encourage customers to purchase higher-margin items and services. It is commonly used in retail stores, restaurants, and other industries where products and services are sold. Upselling typically involves offering existing customers the option of upgrading their current product or service to a higher-end model or adding additional features at an increased cost. Upselling can be an effective way for businesses to increase Customer Lifetime Value without needing additional customer traffic.

Tip #4 To Increase Customer Lifetime Value - Cross-selling

Cross-selling is a popular sales technique alternative to upselling. At its core, is about selling sell additional products or services to an existing customer who is already purchasing something. This type of sales strategy is used by many businesses as it helps increase their overall revenue and profits. If you get into the habit of suggesting related products to customers during the checkout process, you might see your Customer Lifetime Value go up over time.

Tip #5 To Increase Customer Lifetime Value - Start a Loyalty Program

If you are not running any loyalty program yet, you are leaving dollars on the table. A loyalty program is a marketing system designed to encourage customers to continue making purchases and grow loyalty toward your business. It rewards customers for their loyalty and encourages them to prefer your business as they will get benefits such as discounts, exclusive offers, and more.

Loyalty programs are becoming increasingly popular among businesses due to the potential for increased customer loyalty. At the end of the day, having a loyalty program in place is a great way to grow your Customer Lifetime Value as it increases both the frequency of purchase as well as the average customer lifespan.

Tip #6 To Increase Customer Lifetime Value - Use Email Marketing

Email marketing can be used to promote your products/services, build relationships with customers, and even drive sales. Therefore, is a great method for increasing Customer Lifetime Value. Here are some of the key reasons why email marketing should be used:

First, email marketing is cost-effective. Compared to other forms of marketing, sending out emails is much more affordable. Secondly, it can be done quickly with automated features that make the process easier for businesses. Lastly, when done properly email marketing helps build relationships with customers and grow loyalty over time. The only con is that you’ve got to build up a list of contacts to see some results.

Tip #7 To Increase Customer Lifetime Value - Use Sms Marketing

SMS marketing is an effective and cost-efficient way to reach out to customers. It allows businesses to send personalized, direct messages right into the hands of their target audience.

Using SMS marketing allow you to quickly reach out to your customers with highly targeted messages that can be customized according to your goals. Additionally, it helps build relationships with customers by providing them with up-to-date information about products or services they may be interested in, as well as any promotions or discounts available at any given time.

The immediacy and convenience of SMS make it one of the best methods for building solid relationships with costumes and making more sales. In other words, SMS marketing is fantastic to grow your Customer Lifetime Value.

Tip #8 To Increase Customer Lifetime Value - Train Your Staff To Sell

Training your employees in effective sales techniques can massively increase the Customer Lifetime Value of your business. By investing in training for your staff, you can make sure that they are equipped with the skills and knowledge needed to make sales successfully.

Your staff will also be better placed to meet customer needs, identify upsell opportunities, and develop long-term relationships that result in repeat business. Moreover, customers will benefit from knowledgeable staff who are passionate about their products/services, and this leads to greater customer loyalty.

Tip #9 To Increase Customer Lifetime Value - Differentiate Your Business

DIfferentiating your business means making sure that your business stands out from the crowd and becomes remarkable. People love purchasing from businesses that are unique and reflect their value. Moreover, this typically leads to attracting customers that spend more as your business offer exactly what they want.

If your business becomes different and unique, an increase in the average Customer Lifetime Value will just be a natural consequence.

Tip #10 To Increase Customer Lifetime Value - Give Before Receiving

lifetime customer value

A good strategy to increase Customer Lifetime Value is offering discounts, vouchers, and coupons.

Offering special discounts or exclusive voucher codes will encourage customers to return again and again, as they know they’ll get something in return for their loyalty. Vouchers can also be used to provide an incentive for customers to join the brand’s mailing list, making it easier to stay connected with them.

This strategy also helps create an emotional connection between customers and the business, which can be very beneficial in the long run.

Tip #11 To Increase Customer Lifetime Value - Surprise Your Customers

lifetime customer value

A simple method to increase the average Customer Lifetime Value of your business is surprising your customers. You can do that with gifts, by crafting a heartfelt birthday mail or offering them something when they do not expect it.

By being kind and caring to your customers, you will win their loyalty and they will become advocates for your business. Sometimes, the simplest strategies are the most effective.

Tip #11 To Increase Customer Lifetime Value - Surprise Your Customers

The last tip to increase the Customer Lifetime Value of your business is trying new things. You should always look for ways to improve the satisfaction of your customers and improve the overall experience. Therefore, do not reject innovations or ideas just because they might sound complicated or a mismatch with your business model. You might be surprised and find something that actually works!

How WiFi Marketing Can Help You Improve the Average Customer Lifetime Value of Your Business

As you saw, there are multiple methods and strategies you can apply to improve the average Customer Lifetime Value of your business. However, you can automate most of these initiatives by bringing WiFi marketing into your business model.

You can get the most out of WiFi marketing by using Beambox, an all-in-one platform to transform free WiFi into an asset to make your business more profitable.

Beambox is a plug-and-play device that allows you to connect, capture, and learn more about your customers and their preferences, by using your WiFi. There are over 12,000 venues that are taking advantage of Beambox to collect data from their real customers, measure their results, and redirect their marketing efforts. Do you want to give it a try?

Start your 30-day free trial today!

Get Started With Free WiFi Marketing

Beambox helps businesses like yours grow with data capture, marketing automation and reputation management.

Sign up for 30 days free

Grow your business and customer loyalty with guest WiFi!

Related posts