Customer Lifetime Value (CLV) is the total profit a business can expect from a single customer over the entire duration of their relationship. It helps companies decide how much to invest in acquiring and retaining customers, and it is one of the most important metrics for subscription-based and recurring-revenue businesses.

The basic formula is: CLV = Average Purchase Value x Purchase Frequency x Customer Lifespan x Profit Margin. The LTV:CAC ratio compares this lifetime value to customer acquisition cost. A ratio of 3:1 or higher is generally considered excellent, meaning you earn three dollars for every dollar spent on acquisition. A ratio below 1:1 means you are losing money on each customer.

For example, if a customer spends $85 per purchase, buys 4 times per year, stays for 5 years, and your margin is 30%, the CLV is $510. If it costs $200 to acquire that customer, your net CLV is $310 and your LTV:CAC ratio is 2.55x. This information drives decisions about marketing budgets, retention programs, and which customer segments deserve the most investment.