What is customer lifetime value?

Customer Lifetime Value or CLV is the total revenue or profit you can expect from a single customer over the entire relationship. In other words, customer lifetime value shows how much a customer is really worth beyond their first purchase.

Why customer lifetime value matters

Customer Lifetime Value helps you decide how much you can safely spend on marketing and sales to win and retain a customer. For e-commerce and B2B businesses, customer lifetime value connects marketing activity to long term revenue and profit instead of focusing only on one-off conversions.

When you know your customer lifetime value, you can compare it to your customer acquisition cost and see if your campaigns are truly sustainable. This is crucial when you scale paid channels like Google Ads or Meta Ads, where acquisition cost can rise quickly.

How to calculate customer lifetime value

There are many variations, but a simple way to estimate customer lifetime value is:

Customer Lifetime Value = Average Order Value × Purchase Frequency × Customer Lifespan

More advanced teams use profit instead of revenue, subtract discounts and refunds, and apply a margin for operating costs. In subscription or B2B contracts, customer lifetime value is often tied to monthly recurring revenue and churn rate.

Using customer lifetime value in performance marketing

For growth minded companies, customer lifetime value should guide budget allocation across channels and audiences. In search engine advertising, for example, you can afford higher cost per click for segments with higher customer lifetime value, such as repeat buyers or high margin product lines.

If you run Google Ads or Microsoft Ads, combining customer lifetime value with intent based bidding helps you outbid competitors on your most valuable queries. For practical tips on structuring these campaigns, see this guide to managing competitor campaigns in Google Ads.

Examples of decisions driven by customer lifetime value

  • Raising target CPA on high intent keywords because their customer lifetime value is twice the site average.
  • Investing more in retention flows and post purchase journeys once you see repeat orders drive most of your customer lifetime value.
  • Prioritising markets or segments where customer lifetime value is highest, even if acquisition costs are also higher.
  • Optimising your search engine advertising strategy around long term revenue instead of last click ROAS.
  • Testing AI driven bidding and audience strategies, informed by offline customer lifetime value data.

All these examples show how customer lifetime value turns raw campaign data into clearer business decisions that support profitable growth.

How to improve customer lifetime value

To grow customer lifetime value, you can either increase how much customers spend per transaction, how often they buy, or how long they stay with you. In practice this means better onboarding, smarter remarketing, strong email and marketing automation, and a smooth buying experience across channels.

Customer Lifetime Value becomes even more powerful when combined with insights from AI driven search and attribution. If you want to go deeper into using data and automation for smarter decisions, explore our SEA insights and our blog on AI search.

For teams that want predictable growth, customer lifetime value is not just a metric, it is a planning tool. It shapes your acquisition strategy, your retention roadmap, and how you scale budgets with confidence.