Customer Lifetime Value

Full definition

Customer Lifetime Value (CLV or LTV) is a metric that estimates the total revenue a business can expect to generate from a customer over the entire duration of their relationship. It reflects the long-term financial value of acquiring and retaining a customer, rather than focusing only on individual transactions.

Customer Lifetime Value helps companies understand how much a customer is worth over time and informs decisions about marketing spend, customer acquisition cost (CAC), retention strategies, and overall growth planning.

CLV takes into account factors such as purchase frequency, average transaction value, customer lifespan, and retention rate. A higher CLV indicates stronger customer loyalty, higher revenue predictability, and more sustainable business growth.

Companies use CLV to determine how much they can invest in acquiring customers while remaining profitable and to identify which customer segments generate the highest long-term value.

Use cases

Evaluating customer profitability.

Determining acceptable customer acquisition cost.

Optimizing marketing budget allocation.

Identifying high-value customer segments.

Improving customer retention strategies.

Forecasting long-term revenue.

Prioritizing customer success efforts.

Supporting subscription and SaaS growth models.

Visual funnel

Customer acquired
↓
Customer makes initial purchase
↓
Customer continues purchasing over time
↓
Revenue accumulates across relationship
↓
Customer retained or churned
↓
Total lifetime revenue calculated

Frameworks

Historic CLV model
Uses past revenue to estimate total value.

Predictive CLV model
Uses data and trends to forecast future customer value.

Cohort-based CLV model
Calculates lifetime value based on customer groups.

Revenue-based CLV model
Focuses on average revenue and customer lifespan.

Subscription CLV model
Uses recurring revenue and churn rate to estimate value.

Common mistakes

Ignoring customer churn rate.

Using inaccurate or incomplete data.

Focusing only on short-term revenue.

Not segmenting customers by value.

Overestimating customer lifespan.

Failing to update CLV regularly.

Ignoring differences between customer segments.

Etymology

The term "lifetime value" reflects the total economic value generated over the lifetime of a customer relationship. It became widely used with the rise of subscription businesses and SaaS models, where long-term customer value is critical for profitability.

Localization

EN: Customer Lifetime Value
FR: Valeur vie client
DE: Kundenlebenszeitwert
ES: Valor del ciclo de vida del cliente
UA: Довічна цінність клієнта
PL: Wartość życiowa klienta

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