How to calculate your Customer Lifetime Value (CLV)
@Simone Mann had a great question about how to calculate the average Customer Lifetime Value (CLV) for your dance studio... if you are just starting to track your numbers or this is not a number that you have looked at before, it can feel a bit overwhelming. ✅️ Quick method (3 numbers, 5 minutes)... You only need: 1. Total revenue in the last 12 months (in your currency). 2. Number of paying customers in that same period (i.e. individual students ). 3. Estimated annual churn (or retention) - a simple percent (see how to estimate below). Step A - get Annual Revenue per Customer (ARPC): ➡️ ARPC = Total annual revenue ÷ Number of paying customers Step B - estimate Average Customer Lifetime (years): If you know annual retention rate (customers at end of year ÷ customers at start of year), then ➡️ Annual churn = 1 − retention ➡️ Average lifetime (years) ≈ 1 ÷ annual churn Step C - basic CLV (gross revenue basis): ➡️ CLV ≈ ARPC × Average lifetime (years) Working Example: - Total revenue last 12 months = $120,000 (your currency) - Paying customers (individual students) = 200 - ARPC = $120,000 ÷ 200 = $600 per year - You estimate annual churn ≈ 25% (so most studios lose ~20–30% a year depending on age groups) → lifetime ≈ 1 ÷ 0.25 = 4 years - CLV = $600 × 4 = $2,400 (revenue per student over lifetime) So the average paying household is worth approximately $2,400 in revenue over their time with you, using these assumptions. ✅️ Super-quick shortcut (no churn math) If you can’t estimate churn: ➡️ CLV ≈ (Annual revenue ÷ number of customers) × assumed years Pick assumed years: preschool families often stay 1.5–3 years; school-age families 3–6 years. Use the middle of the range for a quick guess. Example: ARPC = $600 × 3 years (assumed) = $1,800 CLV. 🤪 Quick sanity checks & next steps: - Segment by preschool vs school-age vs teens - CLV can vary a lot. - Track retention based on the same time of year (e.g., signups in Jan 2024, see how many still pay Jan 2025) - one datapoint beats a guess. - Use CLV to set sensible Customer Acquisition Cost (CAC) targets: CAC should be comfortably less than CLV (e.g., CAC ≤ 25–40% of CLV).