In ecommerce, customer lifetime value (CLV) is the metric that determines the total value of a customer to a business. This figure is determined by taking into account a number of factors, including purchase history, frequency of purchases, and average order size.
There are a number of different ways to calculate CLV, but the most common method is to take the gross margin from all purchases made by a customer over their lifetime and subtract any acquisition costs incurred in acquiring that customer. This provides businesses with a net CLV figure which can be used to inform marketing and sales strategies going forward.
It's important to note that CLV is an estimate rather than an exact science, and as such should be treated as one part of a wider picture when making decisions about how to grow your business. Nevertheless, it's a valuable metric for understanding how much each customer is worth to your company and where you might need to focus your efforts in order to drive growth.