The customer lifetime value (CLV) is the total amount of revenue a customer is likely to spend with the company during their lifetime. This is commonly calculated by the following formula:
Simply, this is the number of transactions (T) multiplied by the average order value (AOV) multiplied by the average retention rate (R), multiplied by the average gross margin (AGM).
If a customer buys three times from the organization per year, spends $70 on average in these transactions and remains a customer for 36 months. This would be a total value of $630. We then multiply this figure by the average gross margin of these transactions (let’s assume 30%) for a total customer lifetime value of $189*