Shop owners often have to answer questions like: if each new customer from advertising costs this much, is it worth it; does giving regulars a free drink every month lose money; which customer group deserves the most attention. All three questions revolve around one number: how much money a customer brings to the shop over the whole time they keep coming back. That number is called customer lifetime value, or CLV. For restaurants, cafés and spas, all it takes is one multiplication and a few sales figures you already have.
A formula good enough for a shop
CLV = Average value per purchase × Visits per month × Months the customer keeps coming back. Multiply by the gross margin to get CLV in profit, which is the number to use when deciding what to spend.
| Component | Where to get it | Note |
|---|---|---|
| Average value per purchase | Average order value in the customer report, choosing a 30-day or custom period | Use a period long enough not to be skewed by one holiday week |
| Visits per month | Customer visit frequency, or each customer's total number of orders divided by the number of months | Cafés see a few visits a week, spas usually once a month |
| Months the customer keeps coming back | Purchase history of past customers who have stopped: how long from their first purchase to their last transaction | New shops without enough data can assume one year for now and recalculate later |
| Gross margin | Cost from recipes or purchase price compared with selling price | Use profit, not revenue, when deciding to spend money |
A trial calculation with assumed numbers
The two examples below only illustrate how to calculate; each shop should replace them with its own figures:
| Item | Café | Spa |
|---|---|---|
| Average value per visit | 50,000 VND | 500,000 VND |
| Visits per month | 8 | 1 |
| Months still returning | 10 | 12 |
| CLV in revenue | 4,000,000 VND | 6,000,000 VND |
| Gross margin | 60% | 50% |
| CLV in profit | 2,400,000 VND | 3,000,000 VND |
Worth noticing: a café customer pays only fifty thousand dong each time, but over the whole relationship they are not far behind a spa customer. A free drink each month to keep that customer is a very small cost compared with the more than two million in profit they bring.
Using CLV to decide three things
- The ceiling on the cost of winning a new customer. Not every new customer becomes a regular. The customer report shows how many customers came only once and how many came a second time; multiply the second-visit rate by CLV in profit to see what a new customer is really worth. Spending more than that on advertising per new customer means losing money.
- How generous to be with regulars. Put the value of the offer next to CLV in profit. An offer worth only a small fraction of CLV that keeps a customer for a few more months pays off.
- Which customer group deserves attention. Calculate CLV separately for each group: new customers, steady customers, and customers who used to buy regularly and then stopped. The last group is often the most worth winning back because their CLV has already been proven. For how to split groups, see the article on segmenting your shop's customers.
Three common mistakes when calculating
- Using revenue instead of profit. A CLV of four million in revenue sounds large, but if gross margin is only thirty percent, the shop has just over one million to spend on keeping that customer.
- Letting a few big spenders skew the average. The ten highest-spending customers can inflate the average. Look at the top customers by spending separately, calculate one CLV line for them and one line for everyone else.
- Only customers with a phone number can be measured. Customers who buy without leaving a number have no history and cannot be counted. To get CLV closer to reality, the first job is capturing customers at the counter; see the article on asking for customers' phone numbers at checkout.
How Ordersys helps
Ordersys CRM software gathers each customer's purchase history: total purchases, total paid, last transaction, membership tier and accumulated points. The customer overview page shows average order value, customer visit frequency, return frequency, the number of customers who came once and twice, and the top 10 customers by spending, filtered by 7 days, 2 weeks, 30 days or a custom range; the customer list can be exported to Excel for further calculation. Shops can try it free for 7 days. Once you have CLV, the next step is finding the right customers who are drifting away; read the article on how to win back past customers.
Ordersys has editions for restaurants and for retail stores: checkout, stock, reports and e-invoices, with on-site setup and training.
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