What is CLV?
CLV (Customer Lifetime Value), also known as LTV (Lifetime Value), is the total revenue or profit a company can expect to generate from a single customer over the entire customer relationship. It's one of the most important metrics for SaaS companies and other subscription-based businesses.
CLV helps companies understand the long-term value of their customers and make better decisions about customer acquisition, retention, and compensation.
Why is CLV important?
For the company
- Customer acquisition decisions: Determines how much you can invest in acquiring new customers (CAC)
- Segmentation: Identify the most valuable customer segments
- Resource allocation: Prioritize efforts toward high-CLV customers
- Valuation: Key metric for investors and acquisitions
For sales compensation
- Commission structuring: Align commission with long-term customer value
- Quality focus: Reward salespeople for finding high-CLV customers
- Clawback design: Set clawback periods based on typical CLV realization
How to calculate CLV
Simple formula (historical)
CLV = Average Revenue per Customer × Average Customer Lifespan
Detailed formula (SaaS)
CLV = (ARPU × Gross Margin) / Churn Rate
Where ARPU = Average Revenue Per User (monthly)
CLV calculation example
- Monthly ARPU: $250
- Gross margin: 80%
- Monthly churn rate: 2%
- CLV: ($250 × 0.8) / 0.02 = $10,000
Alternative calculation with customer lifespan
- Monthly ARPU: $250
- Average customer lifespan: 36 months
- Gross margin: 80%
- CLV: $250 × 36 × 0.8 = $7,200
CLV benchmarks
CLV varies enormously by industry and business model:
- SMB SaaS: $2,000-$10,000
- Mid-market SaaS: $10,000-$75,000
- Enterprise SaaS: $75,000-$750,000+
CLV:CAC ratio
The most important ratio in SaaS economics:
- 3:1 or higher: Healthy, scalable business
- 2:1: Acceptable, but limited margin
- 1:1 or lower: Not sustainable - spending too much on acquisition
How to increase CLV
Reduce churn
- Improve product quality and customer experience
- Proactive customer success
- Better onboarding
- Regular business reviews
Increase revenue per customer
- Upselling to higher plans
- Cross-selling add-ons
- Annual price increases
- Expansion revenue from growing customers
Improve customer selection
- Focus on ideal customer profiles (ICP)
- Better lead qualification
- Avoid customers with poor fit
CLV and sales compensation
CLV should influence commission design:
CLV-based commission
- Higher commission for high-CLV customer segments
- Bonus for multi-year contracts
- Commission on expansion revenue (not just new business)
CLV-aligned clawback
- Clawback period matches typical time to CLV realization
- Longer clawback for higher upfront commission
Quality incentives
- Bonus for low churn in salesperson's customer base
- Commission on renewal (Account Management)
CLV segmentation
Not all customers have the same CLV. Segment to optimize:
- High CLV: Enterprise customers, multi-product, low churn
- Medium CLV: Mid-market, standard products
- Low CLV: SMB, high churn, price-sensitive
Related terms
- CAC: Customer Acquisition Cost
- Churn: Customer attrition
- NRR: Net Revenue Retention
- ARPU: Average Revenue Per User
- MRR/ARR: Recurring revenue
Optimize for CLV with Prowi
Commission structures should reward salespeople for finding high-CLV customers. With Prowi, you can design compensation plans that align sales behavior with long-term customer value, including differentiated rates, clawback rules, and expansion commission. Book a demo and see how Prowi can help you optimize for CLV.