No single CLV formula fits every business.
Simple purchase model
Average order value × purchase frequency × lifespan × margin is transparent and useful for planning. Its weakness is the assumption that averages remain stable.
Churn-based model
Subscription businesses sometimes approximate lifespan as 1 ÷ churn rate. This is sensitive to period choice and assumes a stable hazard of cancellation.
Cohort model
Track cumulative contribution by acquisition cohort. This reveals channel and seasonal differences without forcing one retention curve onto every customer.
Discounted model
Finance-oriented models discount future cash flows and may include survival probabilities. They are more precise but require reliable historical data and explicit assumptions.
Use the simplest model that supports the decision, and label whether the output represents revenue, gross profit or contribution.
Sources
This guide is educational and does not provide financial, accounting, tax or legal advice.