What is Customer Lifetime Value and why is it so important?

January 20, 2025

Looking for a smarter way to maximize revenue? You need to understand Customer Lifetime Value.

It doesn’t matter what you’re buying or when; the marketplace for goods across all industries and regions has never been more competitive. This competition sets the scene for the growing issues businesses face in attracting new customers, which has seen the cost of customer acquisition (CAC) rise significantly over recent years.

These rising costs impact how businesses sell across all B2B and B2C markets. However, forward-thinking companies are increasing revenue without focusing solely on the increasingly costly acquisition of new customers. These businesses focus on Customer Lifetime Value.

Customer Lifetime Value (CLV) is one of the most impactful metrics businesses operating in the digital marketplace can measure. It not only measures current performance but, when used effectively, it can also inform various parts of business strategy moving forward. But what is Customer Lifetime Value and what does it mean for your business? Let’s find out.

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See how Forrester analysts view the importance of Customer Lifetime Value.

What is Customer Lifetime Value (CLV)? 

Customer Lifetime Value, or CLV, represents the total revenue a business can expect to generate from a single customer throughout their entire relationship with the brand. It goes beyond the initial transaction to consider the customer’s initial purchase, repeat purchases, and the average duration of their relationship with the company. 

Having a higher CLV means your customers are more likely to be coming back to your brand time and again for repeat purchases. This means higher brand loyalty, which translates to consistent revenue and further opportunities for upselling. Repeat purchases also give you important insight into how your customers buy. This insight can, in turn, be valuable when it comes to developing your business strategy.

How to calculate Customer Lifetime Value?

While the formula for calculating CLV varies depending on your unique business model, there is a widely used approach across multiple industries:

Customer Lifetime Value = (Average Purchase Value) x (Purchase Frequency) x (Customer Lifespan) 

Let’s look at an example of what that might mean in practice. Imagine you run a sports supplement company. In this industry, customer loyalty is a big deal. A customer makes around five purchases a year and spends around $100 each time. If that customer stays loyal for three years, their CLV would be $1,500. 

By understanding and optimizing CLV, you can focus on long-term value creation instead of short-term revenue gains. This can help decision-making around where to allocate resources strategically. It also gives you a tangible way to measure the impact of customer retention strategies so that you can identify and nurture your most valuable customer segments. 

customer talking to sales assistant in shop

Why does Customer Lifetime Value matter?

Customer Lifetime Value is more than just a number. When you use it effectively, CLV becomes a foundational metric that influences various aspects of business decision-making. 

For example, it can help you: 

Success in the digital marketplace is all about using data-driven insights to develop customer-centric strategies that fuel sustainable growth. And you don’t get a much better insight than CLV. 

Why PIM software is key to maximizing CLV

For businesses that sell products in today’s ever-changing world, it’s crucial to have the right technology in place to give you the tools you need to succeed. Product Information Management software is one of these critical tools, allowing you to onboard and manage product data, enrich it into market-ready product information, and then distribute and monitor this information on all sales channels. As such a business-critical application, PIM software has a significant role to play in helping businesses maximize Customer Lifetime Value. Here’s how:

When integrated with analytics technology such as Digital Shelf Analytics, PIM systems become powerful engines for understanding customer behavior. This makes it easier to deliver targeted marketing campaigns based on real purchasing patterns and preferences. Once your customers are interested, your PIM can support personalized shopping experiences with tailored product recommendations that increase the likelihood of repeat purchases and sustained engagement. 

inriver: The PIM for extending Customer Lifetime Values

With customer acquisition costs rising constantly, it’s clear that businesses today cannot ignore the need to maximize their Customer Lifetime Values. However, to do this as part of a broader business strategy, PIM software is essential. More critical still is having the right PIM software at the heart of the commerce tech stack.

The inriver platform offers the most flexible PIM software on the market. Built on the foundation of a fully adaptable data model, the inriver PIM solution is the perfect engine to maximize CLV across even the most complex omnichannel strategy. Built on a single source of truth for market-ready product information, the inriver PIM has API-based syndication and digital shelf analytics technology integrated, giving you all the tools you need to succeed in today’s omnichannel world from a single, intuitive platform.

want to see the inriver PIM in action?

Schedule a personalized, guided demo with an inriver expert today to see how the inriver PIM can get more value from your product information.

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