How much is each customer worth? Customer Lifetime Value the compass for investing safely in acquisition

Imagine you're about to approve the marketing budget for the next quarter. The numbers of clicks, impressions and even sales forecasts look promising, but the question arises: "Are we spending too much to attract each new buyer?"

The only way to answer with confidence is to know the Customer Lifetime Value (CLV). CLV estimates how much money, in gross profit, each customer leaves your company over the course of the relationship, not just the first purchase. When you start making decisions with this metric in mind, marketing stops being a gamble and becomes a calculated investment.

Why CLV (Customer Lifetime Value) should guide every euro that comes out of your pocket

CLV is more than a formula; it's the financial compass that indicates how much you can pay to win a new customer without jeopardising your accounts. If a customer generates an average of €300, net of product costs, we know that spending up to €100 to acquire them is perfectly viable. This three-to-one ratio (known in the literature as CLV : CAC ≥ 3 : 1, where CAC stands for customer acquisition cost) is widely used by investors and analysts to assess the health of a business. The advantage of working with this ratio is obvious: it guarantees that every euro allocated to advertising comes back, multiplied, in the form of profit.

Why many companies underestimate the value of each customer - and end up cutting out winning campaigns

Without measuring CLV, the tendency is to evaluate channels only by the price of a click or the cost of an immediate sale. This thinking ignores two essential factors: the frequency with which the customer returns and the average value of their basket. So you end up turning off apparently "expensive" adverts which, in reality, bring in people willing to buy again and spend more. The result is a budgetary rollercoaster: sometimes you invest too much in cheap leads (potential customers) who never come back, and sometimes you cancel the strategy just when it would start to pay off. When CLV becomes part of the analysis, the manager stops navigating by sight and starts to know the real return that each channel can offer.

How to discover your customers' lifetime value in practice

The first step is to collect three pieces of data that already exist in your company.

• Average purchase value: the average ticket a customer spends on a transaction.

• Frequency of purchase: how often on average your customers make more than one purchase.

• Retention time: How many years, on average, customers remain active before disappearing.

  
  

Multiplying these three elements gives you the gross CLV. If you want greater precision, multiply by your average margin and you'll have the contributory CLV, which reflects the real profit. 

It's true that you can use statistical models to predict retention, but to begin with, your historical sales and cancellation figures offer a sufficiently robust estimate. The important thing is to do this calculation regularly, because customer longevity and the average ticket change every time you launch new products, adjust prices or enter a different channel.

Resuming: 

Element	Cálculo	Explicação
AOV	Total Sales / N.º Orders	Average order value
Lifetime (days)	last purchase - first purchase For each customer who bought more than once, see how many days passed between the first and last purchase. Add up all the days and divide by the number of customers.	Average working life, in days
Lifetime (years)	Lifetime(days) / 365	Convert to years
Gross margin (%)	1 - (total costs of sales / total sales)	Obtaining the gross margin
Annual purchase frequency	Number of orders / Lifetime(anos)	Obtain the annual frequency of purchase

LTV = Gross Margin x AOV x Annual Freq. x Lifetime (years)

What is a "good" CLV?

Values vary radically from industry to industry. In online fashion retail, a customer is usually worth between €110 and €400 or more, depending on the average price. In a B2B (Business to Business) digital service, such as monthly subscription software, the CLV jumps to tens of thousands of euros because the revenue is repeated every month and retention is lengthy.

In specialised consultancy, it's not uncommon to exceed €90,000 per client, since a single contract can last for years. These figures, obtained from market research, are not used to copy targets, but rather to understand whether your CLV is below or above the industry standard and, consequently, how aggressive the acquisition investment can be.

Putting CLV to work in favour of growth

Once you know the real value of each customer, using CLV in day-to-day management becomes simple. First, the maximum CAC is defined: just divide the CLV by three to guarantee financial comfort. Advertising campaigns are then adjusted so that audiences with higher CLV receive higher bids, while less profitable segments are targeted with low-cost messages or retention efforts..

It's worth remembering that increasing CLV doesn't just depend on advertising: reducing cancellations, improving after-sales service and creating loyalty programmes naturally extend the life of the customer, increasing the total value they leave the company with without changing the cost of bringing them to you at all.

How Rocket Fuel Ads applies this logic daily

At Rocket Fuel Ads we don't launch any campaign before we understand the CLV of each customer segment. We map these values by channel - be it paid search, social media or marketplace advertising - and from there we calculate the maximum acceptable CAC. 

Before you approve your next advert, ask yourself the fundamental question: "How much profit does each customer represent over their lifetime?" With that answer in hand, you'll know exactly how far you can go with acquisition investment, where you need to improve retention and when to scale up with confidence. Customer Lifetime Value isn't just another metric: it's the foundation that turns your marketing into a predictable revenue machine.