Customer Lifetime Value: Formula and Example

Customer lifetime value estimates the value a customer creates across the relationship, not only the first order.

Basic customer lifetime value formula

Average order value × purchase frequency × average customer lifespan.

Shopify’s current CLV guidance uses these components and also recommends considering profit margin for a more commercially useful result. See Shopify’s 2026 CLV guidance.

Worked example

A customer spends $80 per order, purchases three times a year and remains active for two years.

$80 × 3 × 2 = $480 revenue CLV.

If contribution margin is 35%, the estimated contribution before customer-level fixed costs is $168.

Why revenue CLV can mislead

Discounts, product cost, fulfilment, returns, support and acquisition cost change the value created. Compare revenue CLV with contribution and payback.

Segment CLV

Calculate by acquisition channel, first product, discount cohort, geography and customer type. A blended average can hide customers who are expensive to acquire or serve.

Use CLV carefully

Historical data does not guarantee future behaviour. Document the period, customer definition and assumptions. Use observed cohorts where possible.

Decisions CLV can support

• Allowable customer acquisition cost.
• Retention investment.
• Product and channel priorities.
• High-value customer service.
• Discount and loyalty economics.

Combine CLV with customer retention rate, contribution margin and the wider retention strategy.

This article provides general business and marketing information. Results, platform features and legal obligations vary; use your own data and obtain appropriate advice.