How to Calculate Customer Lifetime Value for Shopify

Customer Lifetime Value (CLV) tells you how much revenue a customer generates over their entire relationship with your store. This metric determines how much you can spend to acquire customers and which customers to prioritize. Here is how to calculate it.

What Is Customer Lifetime Value?

The Definition

CLV (Customer Lifetime Value): The total revenue you can expect from a single customer account throughout their relationship with your business.

Why it matters:

• Determines sustainable customer acquisition cost
• Identifies high-value customer segments
• Guides retention investment decisions
• Informs pricing and discount strategies

CLV vs. Other Metrics

AOV (Average Order Value): Revenue from a single transaction. One moment in time.

Purchase Frequency: How often customers buy. Behavior pattern.

CLV: Combines AOV, frequency, and customer lifespan. Complete picture.

Basic CLV Calculation

The Simple Formula

CLV = Average Order Value x Purchase Frequency x Customer Lifespan

Example:

• Average Order Value: $75
• Purchase Frequency: 3 times per year
• Customer Lifespan: 2 years
• CLV = $75 x 3 x 2 = $450

Finding Each Component

Average Order Value (AOV): Total Revenue / Number of Orders = AOV

In Shopify: Analytics > Reports > Sales over time

Purchase Frequency: Total Orders / Total Unique Customers = Frequency

Calculate over meaningful period (1 year typically).

Customer Lifespan: Average time between first and last purchase across all customers. Harder to calculate, often estimated.

Simple estimate: 1 / Churn Rate = Lifespan in periods

If 25% of customers do not return each year, lifespan is approximately 4 years.

Historical CLV Calculation

Looking Backward

Historical CLV: Actual revenue from a customer to date.

Formula: Sum of all purchases from that customer.

In Shopify: Customers > Select customer > Total spent

Use case: Segment customers by actual value. Identify your best customers.

The Limitation

Historical CLV only shows past behavior. It does not predict future value. A customer who spent $500 last year might not return.

Predictive CLV Calculation

Looking Forward

Predictive CLV: Expected future revenue based on behavior patterns.

Why it matters: Helps you invest in customers before they become valuable, not after.

Simple Predictive Formula

Predictive CLV = (AOV x Purchase Frequency x Gross Margin) / Churn Rate

Example:

• AOV: $75
• Purchase Frequency: 3/year
• Gross Margin: 40%
• Churn Rate: 25%

CLV = ($75 x 3 x 0.4) / 0.25 = $360

This accounts for margin (not all revenue is profit) and customer churn.

Cohort-Based Prediction

More accurate approach: Track customer cohorts (customers acquired in same period) and measure their behavior over time.

Steps:

1. Group customers by acquisition month
2. Track revenue per cohort over 12-24 months
3. Calculate average revenue curve
4. Project future revenue

Why it works: Accounts for your specific customer behavior, not generic formulas.

Shopify-Specific CLV Calculation

Using Shopify Data

Where to find data:

Total Revenue: Analytics > Reports > Total sales

Order Count: Analytics > Reports > Orders over time

Customer Count: Analytics > Reports > Customers over time

Repeat Purchase Rate: Analytics > Reports > Returning customer rate

Manual Calculation Steps

Step 1: Export customer data Customers > Export (all customer data)

Step 2: Calculate per customer Sum of order values for each customer.

Step 3: Average across customers Total revenue / Unique customers = Average CLV

Step 4: Segment Break down by acquisition source, first product, etc.

Shopify Apps for CLV

Dedicated CLV apps:

• Lifetimely
• Retention Science
• Segments by Tresl

Features:

• Automatic CLV calculation
• Cohort analysis
• Predictive modeling
• Segmentation

CLV by Customer Segment

Why Segment?

Not all customers are equal:

• Some segments have 10x higher CLV
• Acquisition strategies differ
• Retention needs differ

Common Segments

By acquisition source:

• Organic search customers
• Paid social customers
• Referral customers
• Email subscribers

By first product:

• Entry-level product buyers
• Premium product buyers
• Sale item buyers

By behavior:

• One-time buyers
• Repeat purchasers
• Subscription customers

Calculating Segment CLV

Formula per segment: Same as basic formula, but filtered to segment.

Example:

• Email subscriber CLV: $650
• Paid social CLV: $180
• Organic search CLV: $420

Insight: Email subscribers are 3.6x more valuable than paid social acquisitions.

Using CLV for Decisions

Customer Acquisition Cost (CAC) Ratio

The golden ratio: CLV should be at least 3x CAC.

Example:

• CLV: $450
• Maximum CAC: $150

If your CAC exceeds this: You are paying too much to acquire customers, or your CLV needs improvement.

Acquisition Strategy

High CLV segments: Spend more to acquire. Worth the investment.

Low CLV segments: Reduce acquisition spend. Focus on improving CLV or finding better segments.

Example decision: If email subscribers have $650 CLV and paid social has $180 CLV, shift budget toward email list building.

Retention Investment

CLV determines retention budget: If increasing retention 5% adds $100 to CLV, you can spend up to $99 on that improvement.

Focus areas:

• Post-purchase email sequences
• Loyalty programs
• Subscription options
• Customer service quality

Discount Strategies

CLV-informed discounting: If CLV is $450, offering $50 off first order to acquire a customer makes sense. If CLV is $100, that $50 discount may not work.

Segment-specific discounts: Offer larger discounts to acquire high-CLV segments, smaller discounts for low-CLV.

Improving CLV

Increase Average Order Value

Cross-selling: Suggest complementary products at checkout.

Bundling: Combine products at slight discount.

Free shipping threshold: Set threshold above current AOV.

Premium options: Offer upgrade versions.

Increase Purchase Frequency

Email marketing: Stay in touch between purchases.

Subscription options: Convert one-time buyers to recurring.

Loyalty programs: Reward repeat purchases.

Replenishment reminders: For consumable products.

Extend Customer Lifespan

Reduce churn: Identify why customers leave. Address causes.

Win-back campaigns: Re-engage lapsed customers.

Customer experience: Quality product and service builds longevity.

Community building: Customers who feel connected stay longer.

Common CLV Mistakes

Mistake 1: Ignoring Costs

Problem: Using revenue instead of profit for CLV.

Fix: Account for cost of goods, shipping, returns. Use gross margin.

Mistake 2: Short Time Horizon

Problem: Calculating CLV over 6 months when customers buy for years.

Fix: Use appropriate lifespan. For many businesses, 2-5 years is realistic.

Mistake 3: Not Segmenting

Problem: Using average CLV when segments vary 10x.

Fix: Calculate CLV by segment. Make decisions per segment.

Mistake 4: Static Calculation

Problem: Calculating CLV once and never updating.

Fix: Recalculate quarterly or when business changes significantly.

Mistake 5: Ignoring Referrals

Problem: Not accounting for customers who refer others.

Fix: Include referral value in CLV for customers who refer. Some customers are worth more because of who they bring.

CLV Benchmarks

By Industry

Fashion/Apparel: $150-$400

Beauty: $200-$500

Food/Beverage: $250-$800

Electronics: $100-$300

Home Goods: $150-$400

CLV:CAC Ratios

Healthy: 3:1 or higher

Concerning: 2:1 to 3:1

Problem: Below 2:1

Repeat Purchase Rates

Good: 20-30% repeat within year

Excellent: 40%+ repeat within year

Higher repeat rates drive higher CLV.

Tracking CLV Over Time

What to Monitor

Overall CLV trend: Is it increasing, decreasing, or flat?

Segment CLV changes: Are certain segments improving or declining?

New customer quality: Are recent cohorts higher or lower CLV?

Reporting Cadence

Monthly: Track leading indicators (AOV, purchase frequency).

Quarterly: Recalculate CLV. Compare cohorts.

Annually: Strategic review. Adjust acquisition and retention strategies.

The Bottom Line

CLV is perhaps the most important metric for sustainable growth.

The basics: CLV = AOV x Purchase Frequency x Lifespan

Key applications:

1. Set maximum customer acquisition cost
2. Prioritize high-CLV segments
3. Guide retention investment
4. Inform discount strategies

Improvement levers:

1. Increase order value (cross-sell, bundle)
2. Increase frequency (email, loyalty)
3. Extend lifespan (reduce churn, quality)

A customer worth $450 over their lifetime is worth investing in. A customer worth $50 may not be worth acquisition at all.

Know your CLV by segment. Make decisions accordingly. This single metric can transform your business strategy.