Customer Lifetime Value (CLV) refers to the amount you can expect to earn from an individual customer across the time the customer does business with your company.
Ideally, you want your customers to be lifetime consumers. This situation means that you have customers coming back time and again. When considering your CLV, you consider how much revenue your e-commerce site can earn from a single customer. Then, you can project that value over the total number of customers.
Consider this example:
A cosmetics company sells skincare products via a monthly subscription. Every month, subscribers get a package in the mail with a month’s supply of products. The monthly subscription costs $10 and lasts 12 months. In this example, we can expect the CLV to be $120 per customer.
The most significant issue in this example is that the company has assured its income for 12 months. Of course, the company must ensure that customers renew their subscriptions, or it must find new subscribers.
Your CLV depends on your ability to keep customers coming back regularly. If your business has trouble keeping customers, your CLV will be lower. Ideally, keeping customers aboard long-term is the best way to ensure your CLV remains steady.