What is CLV and how is it calculated in eCommerce?
Posted: Tue Feb 18, 2025 3:36 am
E-commerce strategies
CLV : what is it?
Customer lifetime value or CLV is a typical metric in e-commerce and all companies that base their analysis on purchasing behavior. It is a measurement method intended to understand the value that a customer will generate over time, making an assumption based on the average value of transactions made over a given period.
Let's start with an example: a user buys in a store 5 times a year for a value of about 20 euros and let's assume that he can buy for another 2 years in the same way. The value that the user generates for the company is equal to 5 x 20 x 2 = 200 euros. For simplicity, we have used a "gross" measure, but the CLV must be calculated on the real average value of the user, that is, on the germany cell phone number list profit margin that the company can estimate over time, excluding all costs, including management costs. Assuming that the company has a margin of €6 on each product, the CLV will be equal to 5 x 6 x 2 = €60. There are several ways to calculate the CLV , in this infographic from Kissmetrics you will find three formulas from the simplest to the most elaborate .
Why is CLV important?
This metric is used, among other things, to understand how many sales or how long it takes to "recoup" an investment in acquiring a new customer. If, in the previous case, we spent 1 euro to acquire the contact, one sale will be enough to return. If, on the other hand, the acquisition cost had been 8 euros, to be profitable, it would have been necessary to wait for the second purchase by the customer. In general, if the margin is low, it is essential to repeat transactions over time, precisely to optimize the costs incurred in finding new customers. If the margin is high, retention may be a less critical factor, but only on the surface. In fact, it remains a necessary key to building a solid and sustainable business. It goes without saying that this is even more true for e-commerce with business models based on products with a high repurchase frequency.
CLV : what is it?
Customer lifetime value or CLV is a typical metric in e-commerce and all companies that base their analysis on purchasing behavior. It is a measurement method intended to understand the value that a customer will generate over time, making an assumption based on the average value of transactions made over a given period.
Let's start with an example: a user buys in a store 5 times a year for a value of about 20 euros and let's assume that he can buy for another 2 years in the same way. The value that the user generates for the company is equal to 5 x 20 x 2 = 200 euros. For simplicity, we have used a "gross" measure, but the CLV must be calculated on the real average value of the user, that is, on the germany cell phone number list profit margin that the company can estimate over time, excluding all costs, including management costs. Assuming that the company has a margin of €6 on each product, the CLV will be equal to 5 x 6 x 2 = €60. There are several ways to calculate the CLV , in this infographic from Kissmetrics you will find three formulas from the simplest to the most elaborate .
Why is CLV important?
This metric is used, among other things, to understand how many sales or how long it takes to "recoup" an investment in acquiring a new customer. If, in the previous case, we spent 1 euro to acquire the contact, one sale will be enough to return. If, on the other hand, the acquisition cost had been 8 euros, to be profitable, it would have been necessary to wait for the second purchase by the customer. In general, if the margin is low, it is essential to repeat transactions over time, precisely to optimize the costs incurred in finding new customers. If the margin is high, retention may be a less critical factor, but only on the surface. In fact, it remains a necessary key to building a solid and sustainable business. It goes without saying that this is even more true for e-commerce with business models based on products with a high repurchase frequency.