Definition
The amount of money that one specific customer is likely to pay during their engagement with your company.
The value is specific to each customer. It is calculated by dividing the current recurring revenue for that customer by the most accurate estimated churn rate for that customer. If you use monthly recurring revenue, use the monthly churn rate. If you use annual recurring revenue, use annual recurring revenue. The most accurate churn rate may be the average churn rate for your customers. If you calculate more specific churn rates (for example by segment), you may use that for extra accuracy. Example:
- Your customer is paying €20’000 every year
- Your average annual churn rate for a similar customer is 5%
- The customer’s CLV is €20’000 / 5% = €400’000