Customer lifetime value
Updated September 30, 2026
In one sentence
Customer lifetime value estimates what a customer brings you in total, from first to last purchase.
A simple calculation
Take the average purchase amount. Multiply it by the number of visits per year, then by the number of years a customer stays on average. That gives you their total purchases. Then multiply by your gross margin: that’s what the customer really leaves you.
What it’s for
It tells you how much you can spend to keep a customer or win a new one. For example: rewards, a referral gift, an offer to bring them back. If a regular leaves you several hundred dollars in margin, a free coffee to bring them back costs little.
Its limits
It’s an estimate. A new business can’t easily know how long a customer stays: use a cautious figure. Don’t be quick to compare members with other customers. Your best customers sign up on their own, so the gap doesn’t come from the card alone. A control group measures what the card really adds.
In a restaurant, the average bill is $30. A regular comes twice a month, or 24 times a year. They stay 3 years on average: 30 × 24 × 3 = $2,160 in sales. With a 65% gross margin, that customer leaves you about $1,400.
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