Metric – The most founder friendly finance app in the world!

What is Customer Lifetime Value and Why It’s Important

Whether you are a new business owner interested in evaluating your startup’s financial position, or if you are an investor performing due diligence before entering an investment agreement with a new firm, it is worth understanding the concepts of Customer Lifetime Value (CLV).


Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV/LTV) are two crucial components for business valuation. Both concepts go hand in hand, as ideally, their respective values should be inversely proportional.


What is Customer Lifetime Value (CLV or LTV)?

Customer lifetime value shows how much profits your business earns, on average, from a single customer over their course of your business relationship. It is essentially a measurement of how valuable a customer is to your company, not just for a single purchase, but across your entire business relationship.


The higher the CLV, the more valuable the customer is for your business. This is a very valuable metric for potential investors for several reasons:


  • Firstly, it is compared against Customer Acquisition Cost (CAC) to determine whether it is worth it to invest money in acquiring a customer in the first place
  • It allows investors to see how much a single customer’s business contributes to the revenues and profits of the firm
  • It costs less to keep existing customers than it does to prospect new ones, so it is worth seeing how much value an existing customer is providing to the business


Therefore, investors will consider customer lifetime value when performing valuation of your business’ financial position as part of their due diligence.


The most basic formula for calculating CLV/LTV is as following:


Customer Lifetime Value =

(Customer revenue per year x Duration of customer relationship in years) – Total cost of acquiring/serving the customer


What is Customer Acquisition Cost and How Does it Relate to CLV?

Customer acquisition cost (CAC) shows investors how much it costs your business, on average, to gain a single client or customer. Costs include advertising fees, sales commissions, referral fees, and other marketing expenses.


CAC is closely investigated alongside LTV during financial valuation. This is because on one hand, CAC shows the total cost of acquiring a single customer, while LTV shows how much that customer will be worth throughout their lifetime with the business.


Very simply put, an investor will be more willing to invest in a business that has low CAC, and a much higher LTV. This is because it shows a greater potential for profit generation.


The Best Financial Valuation Agency in Pakistan

Here at Vixperts, we help Pakistani startups and businesses grow their business and raise millions of dollars in investment! If you are interested in learning more about the CAC and LTV of your business, contact us today. We can provide an in-depth financial valuation of your Pakistani business, and provide the best accounting, bookkeeping, and financial service.. Get in touch today for a free diagnosis of your startup’s financials!

166 thoughts on “What is Customer Lifetime Value and Why It’s Important”

  1. I am no longer positive where you’re getting your info, however good topic. I needs to spend a while studying more or understanding more. Thank you for magnificent info I used to be searching for this information for my mission.

  2. I really like your blog.. very nice colors & theme. Did you make this website yourself or did you hire
    someone to do it for you? Plz respond as I’m looking
    to construct my own blog and would like to find out where u got this from.

    thanks a lot

  3. Wonderful goods from you, man. I have understand your stuff previous
    to and you’re just extremely excellent. I really like what
    you have acquired here, certainly like what
    you’re stating and the way in which you say it. You make it entertaining and you still take care
    of to keep it wise. I can not wait to read much more from you.
    This is really a tremendous website.

  4. Hi, i feel that i noticed you visited my weblog thus i got here to go back the choose?.I’m
    trying to find issues to enhance my site!I assume its ok to make use of a few of your ideas!!

  5. I am extremely impressed with your writing skills as well as with the layout on your weblog.
    Is this a paid theme or did you customize it yourself?
    Either way keep up the excellent quality writing, it is
    rare to see a great blog like this one nowadays.

Leave a Comment

Your email address will not be published. Required fields are marked *