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today I'm going to be answering the question what is clv clv stands for customer lifetime value and is the average monetary value of each customer to your business so when you're looking at what each unique customer is expected to spend with your business that's what customer lifetime value is it's an important metric so you know how much they are worth to your business over their lifespan as a customer by understanding how much they spend on average how many orders they Place per year and how many years they stay with your business now one thing I want to note before I get into some different examples is sometimes clv is also shortened as LTV for lifetime value CLTV customer lifetime value or even CVL so if you see some of these other shortenings it's all the same as clv so coming over here into the formula what you want to do is you're looking at your average order value times average purchase frequency times average customer lifespan so you're using these three different variables to come up with a customer lifetime value how much a unique customer is worth to your business and you're looking at that on the average so that you can understand how much you need to spend on customer acquisition costs because if you're spending too much on customer acquisition costs and your customer lifetime value is much less than your customer acquisition costs then that means that your business is not going to last for very long so coming over here to our first example let's say a marketing tool costs fifty dollars a month the average customer uses the tool for 16 months what's the customer lifetime value so pretty easy formula here the average order value is fifty dollars the average purchase frequency is one time per month we're looking at the average customer lifespan is 16 months so when we're looking at it on a monthly basis then that means that the average order value is fifty dollars and the average customer lifespan is 16 months so we're just multiplying all three of these numbers since one is just one per month then that means it's 50 times 1 times 16 so the clv for this business would be 800 so when we were just looking at customer acquisition costs versus clv if your customer acquisition calls for this or let's say 200 then you're doing great because each unique customer you're bringing in is bringing in much more money to your business so let's look at example number two a running shoe company has customers that buy two pairs of shoes on average per year customers stay loyal for two years on average to this business and spend 128 dollars per order so what is the clv in this case the average order value 128 dollars per order the average purchase frequency is twice per year and the average customer lifespan is two years so you take that 128 you multiply by two and multiply by two one more time so the customer lifetime value for this business is 512 dollars that means that you may have one customer that spends two thousand dollars with your business you may have another customer that spends 128 dollars with your business another customer number that spends seven hundred dollars with your business but ultimately the average for each customer is five hundred twelve dollars now the one issue you may have is not having enough data for a long period of time to know your clv so your clv is going to change over time as you get more and more data now one thing I want to go over real quick is let's just say you don't have enough data for a long enough period of time you launched six months ago you still have you have unique customers you have customers who have purchased from you multiple times but you don't know the average customer lifespan yet your average order value isn't exactly perfect yet you don't know the average purchase frequency per customer becomes much harder to actually know your customer lifetime value so one thing you may want to look at is just your overall unique customer value if you're looking at a shorter period of time so let's just say for example I launched six months ago I have ten thousand dollars total in sales so we're just starting to get sales and starting to grow let's say I have 205 unique customers that have placed a total of 350 orders what you could do is just take that ten thousand dollars in sales divide it by your unique customers so it doesn't matter how many sales that you have total just look at your unique customers and take your total revenue and what you can kind of look is say okay so right now on average our a new customer to us is worth about forty eight forty nine dollars based on the data that we have and we know this is going to change over time so when you're able to incorporate more of how long does a customer usually stay with us how often does that customer purchase from us and how much do they spend on average you're able to come up with that customer lifetime value just note that these are multiplication symbols you're multiplying all three of these numbers to come up with customer lifetime value just like we did in our example so if you have questions about customer lifetime value please leave them in the comments section thanks for watching my video today and make sure you subscribe to the Surfside PPC YouTube channel