Customer lifetime value (CLV) calculation in Digital Marketing - Cheat Sheet & Quick Revision

Recall & Review

beginner

What is Customer Lifetime Value (CLV)?

Customer Lifetime Value (CLV) is the total amount of money a customer is expected to spend on a business's products or services during their entire relationship with the company.

beginner

Which three main factors are used to calculate CLV?

The three main factors are: average purchase value, purchase frequency, and customer lifespan (how long the customer stays active).

beginner

Why is CLV important for businesses?

CLV helps businesses understand how much revenue a customer can bring over time, guiding marketing budgets, customer service efforts, and retention strategies.

intermediate

How does increasing customer retention affect CLV?

Increasing customer retention lengthens the customer lifespan, which increases the CLV because customers keep buying for a longer time.

beginner

What is a simple formula to calculate CLV?

CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan

Which factor does NOT directly affect Customer Lifetime Value?

A Purchase frequency

B Average purchase value

C Customer's favorite color

D Customer lifespan

Customer's favorite color does not affect how much they spend or how often they buy, so it does not impact CLV.

If a customer spends $50 per purchase, buys twice a month, and stays for 2 years, what is their CLV?

A $50

B $1,200

C $100

D $2,400

CLV = $50 × 2 × 24 months = $2,400.

Why should businesses focus on increasing CLV?

A To increase long-term profits

B To ignore customer needs

C To reduce product quality

D To decrease customer lifespan

Increasing CLV means customers spend more over time, which boosts long-term profits.

Which action can help increase CLV?

A Improving product quality

B Reducing customer support

C Increasing prices without value

D Ignoring customer feedback

Improving product quality encourages customers to buy more and stay longer, increasing CLV.

What does 'customer lifespan' mean in CLV calculation?

A How long a customer lives

B How long a customer stays active buying

C How many products a customer owns

D How often a customer complains

Customer lifespan is the time period a customer continues to buy from the business.

Explain in your own words what Customer Lifetime Value (CLV) means and why it matters for a business.

Think about how much money a customer brings during their whole time with a company.

Describe the simple formula to calculate CLV and what each part represents.

Consider how often and how much a customer buys, and for how long.