Why You Need to Care About CLV (Customer Lifetime Value)

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Scott D. Clary

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Scott D. Clary

8 min readJul 8, 2024

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CLV is Your North Star

Let’s cut to the chase: most entrepreneurs are chasing the wrong metrics.

We get hooked on short-term dopamine hits — vanity metrics like daily active users or this month’s revenue spike.

But the real game-changer, the silent force that separates thriving businesses from flashes in the pan?

That’s Customer Lifetime Value (CLV).

Why CLV Is Your North Star (And Why You’re Probably Underestimating It)

Here’s the brutal truth: acquiring customers is EXPENSIVE.

Paid ads, content marketing, that fancy sales team — it all adds up.

If you’re not laser-focused on how much value each customer brings over their entire relationship with your brand, you’re essentially burning money.

Think of CLV like compound interest for your business.

A high CLV means:

Resilience: You’re not sweating every market fluctuation. Loyal customers keep revenue flowing even when times get tough.
Profitability: High-CLV customers are less price-sensitive, more likely to buy premium offerings, and refer their friends (free marketing!).
Data-Driven Decisions: Understanding CLV reveals which customer segments are your goldmines, allowing you to double down on what works.

Why Obsess Over CLV?

Profitability Engine: Higher CLV = Higher Profits. It’s that simple. When you focus on attracting and retaining customers who spend more over time, your profit margins expand.
Sustainable Growth: Acquiring new customers is expensive. CLV shifts your focus to nurturing existing relationships, which is far more cost-effective.
Strategic Decision-Making: CLV guides your investments. You’ll know where to allocate resources for maximum impact, whether it’s in customer acquisition, product development, or customer service.
Competitive Advantage: Companies with high CLV are built to last. They weather economic storms and outpace their rivals.

The CLV Mindset Shift: It’s Not Just About Sales

Too many entrepreneurs confuse CLV with Average Order Value (AOV).

It’s not just about how much someone spends on their first purchase.

It’s about nurturing a relationship.

This means:

World-Class Onboarding: First impressions are everything. Make the customer’s initial experience so seamless they can’t imagine leaving.
Community Building: Create a space where customers feel connected to your brand and each other. This fosters loyalty that goes beyond transactions.
Personalized Experiences: Use data to tailor recommendations and communications. Make each customer feel seen and valued.

The CLV Equation Demystified

Before we dive in, let’s break down the core components of CLV.

At its simplest, CLV is:

Average Purchase Value (APV): How much a customer spends per transaction.
Purchase Frequency (PF): How often they buy from you.
Customer Lifespan (CL): How long they remain a customer.

The basic formula looks like this:

CLV = APV x PF x CL

But that’s just the tip of the iceberg.

To truly understand and optimize CLV, you need to dig deeper:

Gross Margin: Factor in your profit margins to understand the real value each customer brings.
Customer Acquisition Cost (CAC): Knowing how much it costs to acquire a customer helps you determine if your CLV is high enough to be sustainable.
Churn Rate: The rate at which customers stop doing business with you. Lower churn means longer customer lifespans and higher CLV.

The CLV Equation: Cracking the Code

Now.. the billion-dollar question… how do you actually increase CLV?

Now, if you remember from before, the classic CLV formula looks like this:

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

But this is just the starting point.

We need to go deeper.

Segmentation: Not all customers are created equal. Slice and dice your customer base to identify high-value segments.
Churn Rate: Understand why customers leave and implement strategies to reduce churn.
Customer Satisfaction: Happy customers stick around longer. Measure satisfaction and act on feedback.

There are a plethora of tools available to help you calculate and analyze CLV.

Here are a few to get you started:

Baremetrics: Dive deep into subscription metrics.
Kissmetrics: Track customer behavior and engagement.
ProfitWell: Analyze revenue and subscription data.

Key Takeaway: CLV is a dynamic metric that requires continuous analysis and optimization.

Actionable Strategies for CLV Dominance

Now that you’re armed with data, it’s time to implement strategies that move the needle:

Focus on High-Value Segments: Identify your most profitable customer groups and tailor your marketing and retention efforts to them.
Optimize Onboarding: A seamless onboarding experience sets the stage for long-term loyalty. Make sure your customers get quick wins and immediate value.
Create a Loyalty Program: Rewards incentivize repeat purchases and foster a sense of exclusivity.
Personalize Everything: Use customer data to personalize product recommendations, emails, and offers.
Build Community: Foster a sense of belonging through forums, social media groups, or exclusive events.
Offer Stellar Customer Support: Proactive support resolves issues before they escalate, preventing churn.
Upsell and Cross-Sell: Offer complementary products or premium upgrades to increase APV.

Remember, CLV requires constant optimization and experimentation.

But by embracing a data-driven approach and focusing on building long-term relationships with your customers, you can unlock the true growth potential of your business.

Why Subscriptions = Amazing CLV

Now, I need to include some strategy and discussion around subscriptions.

Why?

Because the most powerful tool in the CLV arsenal is the subscription model.

But we’re not just talking about software companies — smart entrepreneurs across all industries are using subscriptions to create recurring revenue, deepen customer relationships, and unlock unprecedented levels of loyalty.

Subscription Mindset: It’s About More Than Just Monthly Payments

The subscription model isn’t just a pricing strategy — it’s a fundamental shift in how you think about your business.

It’s about creating an ongoing, evolving relationship with your customers, where you’re constantly delivering value, surprising and delighting them, and deepening their connection to your brand.

But here’s the key: subscriptions aren’t just for SaaS anymore.

The subscription revolution is transforming industries left and right.

Let’s explore how you can tap into this powerful model, no matter what you sell:

Subscriptions Beyond Software: A World of Possibilities

E-commerce: Think curated subscription boxes for everything from coffee and wine to pet supplies and beauty products. Customers get a personalized experience, discover new favorites, and eagerly anticipate each delivery.
Physical Products: Companies like Peloton and Whoop have turned exercise equipment into ongoing subscriptions, offering classes, community features, and personalized coaching to keep customers engaged and motivated.
Education and Coaching: Online courses, masterminds, and coaching programs can be packaged as subscriptions, providing continuous learning and support for members.
Services: From car washes and lawn care to accounting and legal services, many businesses are offering subscription plans for regular, predictable service delivery.

The Subscription Success Formula: Key Principles to Keep in Mind

Value-Driven: Your subscription must offer compelling value that exceeds the cost. Think exclusive content, early access, personalized recommendations, or members-only perks.
Frictionless: Make signing up, managing payments, and canceling (if they must!) as easy as possible.
Flexibility: Offer different tiers or options to cater to varying needs and budgets.
Community: Create a sense of belonging and connection among your subscribers. This fosters loyalty and encourages word-of-mouth marketing.
Continuous Improvement: Don’t rest on your laurels. Gather feedback, experiment with new offerings, and constantly strive to exceed customer expectations.

The CLV Impact: Subscriptions as a Growth Engine

The benefits of subscriptions for CLV are undeniable:

Predictable Revenue: Recurring revenue creates stability and allows for better forecasting and planning.
Increased Customer Engagement: Regular interactions with your brand deepen the relationship and build loyalty.
Higher Customer Retention: The ongoing value and convenience of subscriptions make customers less likely to churn.
Upsell and Cross-Sell Opportunities: Subscriptions provide a natural platform to introduce customers to premium offerings or complementary products.
Data-Driven Insights: Subscription data reveals valuable insights into customer preferences and behavior, enabling you to tailor your offerings and improve CLV even further.

Make sense?

Let’s get inspired by the companies that are crushing the CLV game with their subscription models.

These are the brands that have cracked the code, turning customers into lifelong members and reaping the rewards of recurring revenue, deep engagement, and unstoppable loyalty.

The Disruptors: Unexpected Subscription Success Stories

Dollar Shave Club: Who knew razor blades could be so exciting? Dollar Shave Club disrupted the industry with their affordable, convenient subscription boxes, creating a cult following and ultimately getting acquired by Unilever for a cool $1 billion.
The Athletic: This sports-focused media company proved that people will pay for high-quality, in-depth content, building a thriving subscription business with millions of loyal subscribers.
MasterClass: By offering online courses taught by world-class experts, MasterClass created a subscription model for lifelong learning, attracting a dedicated community of knowledge seekers.

The Innovators: Pushing the Boundaries of Subscription Models

Rent the Runway: This fashion rental platform revolutionized how people consume clothing, offering designer apparel on a subscription basis, reducing waste and empowering fashionistas with endless wardrobe options.
Porsche Drive: Even luxury car brands are getting in on the action, offering subscription services that allow customers to experience different models, all for a monthly fee.
BarkBox: This subscription box for dog lovers taps into the emotional connection between pets and their owners, delivering monthly surprises that keep tails wagging and customers coming back for more.

The subscription model isn’t just a trend — it’s the future of business.

By embracing this powerful tool, you can unlock new levels of customer loyalty, create predictable revenue streams, and build a brand that stands the test of time.

The CLV Revolution: Your Turn to Lead

Let’s recap the CLV journey we’ve embarked on together.

We’ve covered a lot of ground, from understanding the importance of CLV to implementing powerful strategies to increase it.

Key Takeaways:

CLV as Your North Star: Forget short-term metrics — focus on the long-term value each customer brings to your business.

The CLV Mindset Shift: It’s not just about sales, it’s about nurturing relationships and building loyalty.

Strategies to Supercharge CLV:

Pre-boarding to start relationships before they buy.
Reduce churn & identify at-risk customers.
Creating “wow” moments that spark word-of-mouth.

Subscriptions as a Secret Weapon: Recurring revenue, deep engagement, and higher retention — subscriptions are a CLV powerhouse.

Your CLV Action Plan:

Calculate Your CLV: Start by understanding your current CLV. This will give you a baseline to measure your progress.
Choose Your Strategies: Which of the strategies we discussed resonate most with you and your business? Pick a few to start with and experiment.
Implement and Iterate: Put your chosen strategies into action. Gather feedback, track your results, and continuously refine your approach.
Build a CLV-Obsessed Culture: Make CLV a core metric for your entire team. Encourage everyone to think about how their actions impact the long-term value of your customers.
Embrace the Subscription Revolution: If it makes sense for your business, consider implementing a subscription model to unlock new levels of customer loyalty and recurring revenue.

Remember, CLV is not a quick fix — it’s a long-term investment in your business’s future.

By focusing on building strong customer relationships, delivering exceptional experiences, and constantly innovating, you can create a loyal community of customers who will fuel your growth for years to come.

Scott