Not all customers are equal. Measure CLV and grow the right ones

Customer Lifetime Value (CLV) = the net profit you expect from a customer over the whole relationship — after variable costs to serve and after acquisition cost (CAC). It tells you how much you can afford to spend to win/keep a customer and which customers to prioritise.

What you need

• Revenue per period (AOV × purchase frequency, or ARPU for subscriptions)
• Gross/contribution margin % (after COGS + variable service costs)
• Retention/churn (how long they stay)
• CAC (what it cost to acquire them)

Quick formulas

• Transactional: CLV ≈ AOV × Orders/yr × Margin % × Lifespan (yrs) − CAC
• Subscription: CLV ≈ (ARPU × Margin %) × (1 / churn rate) − CAC

Tiny example (subscription)

• ARPU $50/mo, margin 70% → $35/mo contribution
• Churn 2%/mo → lifespan ≈ 50 months
• CAC $120
• CLV ≈ $35 × 50 − $120 = $1,630

Turn CLV into action

• Set CAC caps (e.g., pay up to ~⅓ of CLV).
• Prioritise high-CLV customers for retention, upsell and referrals.
• Kill channels/cohorts where CLV − CAC is weak.
• Report CLV by segment and by acquisition channel—monthly.