The basic calculation is AOV × purchase frequency × gross margin × expected customer lifespan. The hard part is the lifespan — for a new business, you do not have enough data, so cohort-based estimates from similar businesses or category benchmarks are the starting point.
CLV anchors paid-acquisition decisions. If your CLV is $300 and you spend $200 to acquire a customer (CAC), you net $100 — minus operating costs, refunds, support. If CAC exceeds CLV, you cannot grow profitably with paid channels alone.
The most-overlooked CLV lever is retention. Even small improvements in repeat-purchase rate compound dramatically over the customer lifetime. A 5% lift in retention typically translates to 25–95% lift in profit, depending on category.