Shopify Store: How to calculate CLV

The so-called Customer Lifestime Value (CLV) is nowadays a very popular estimation when it comes to the revenue you will generate with your average customer. Basically the CLV is a measure to check how loyal your customers really are. One reason why it’s so famous is because the CLV is a very easy-going concept but still a tool which can be a huge help within the own calculation progress. The CLV measures the total amount of money a customer will spend during the time being your customer. To say it in a different way: It shows you, how worthy your average customer is. Which helpful insights you can get trough the CLV and which impact it can have will be explained in the next sections.

What is it and how does it work?

The CLV is a measure to find out how much value in money a customer brings to you. It can be referred either to goods or to services a business is selling. To make this a bit more clear an example can be used. Imagine selling 5 hoodies per year at $20 each for twenty years to a custumer. Also there had to be an initial outlay which fictious was $10. That means the profit would be $100 per year over twenty years. Which means reaching $20.000 minus the money which had to be spent to get the customer initialy ($10) and having an actual net CLV of $19.500. Based on the fact the CLV is a instrument being developed for the average customer of an business, there are differences in customers who also have a different CLV. Very loyal customers bring a higher value to the business. Whereas customers who always switch the store where they buy things are bringing overall a way lower CLV to your business.

New insights and a huge help for soon decisions

By using the CLV you will learn tons of new things about your customers and besides that also about your own business. That counts because it gives the oppurtunity to improve the beneficialness of your business as well as possibilities to expand the business. Customer don’t have to be white sheets anymore, nowadays with instruments like the CLV it became very easy to analyze them in their very own purchasing beavior. Furthermore also the product range can be changed and also orientated on how and how much the customers are buying. All these normally very tough decisions can become way easier by using the CLV instrument.

Why it can be so important for your online store

By having an Shopify Store it’s also important to know how much money the customers spend on your online shop. But when you know the industry averages it will help a lot to improve the own business. For this it is important to look for industry which is similar to the own because different industries always have obviously different CLVs. So generalize it you should always remember having a low CLV is never good. The good thing is it gives you the chance to correct things. This shows how the Shopify CLV really can have a huge impact by showing you that your customers maybe aren’t satisfied with the user experience or the product.

How do I know what a good value is?

Experts are saying that achieving a CLV which is three to five time higher than the actual cost you had for the customer aquisition is a good measure for the CLV. To make this a bit more clear you can imagine , for example, spending an average of $50 for the aquisition of a new customer. If you reach sales with this customer of at least $150 you can call your own sale strategy successful. And if you are even to reach ten times of the amount of money you had to spend for the customer aquisition your current sales figures are very good.