Customer Lifetime Value (CLV or LTV) is a metric that represents the total predicted revenue a business expects to earn from a customer throughout their entire relationship. It takes into account the customer’s purchasing history, the average frequency of transactions, and the expected duration of the business relationship.
The formula for calculating Customer Lifetime Value is typically:
CLV=Average Purchase Value×Purchase Frequency×Customer Lifespan
Understanding and maximizing CLV is crucial for businesses as it helps in making informed decisions about customer acquisition costs, marketing strategies, and overall business growth. A higher CLV indicates that a customer is more valuable to the business over time, and companies often focus on building long-term relationships with customers to enhance their overall profitability.