Customer Lifetime Value (CLV)

Definition

Customer lifetime value (CLV) is a metric to determine a company's total expected income from a client till the client account is active. The longer a client account stays active, the higher the customer's lifetime value from it. It is one of the metrics used to measure a company's growth.

Example

Suppose a company makes average sales of $80. A client makes two purchases every two years. The LTV will be $80 x 2 x 2 = $320. Suppose, in this case, the profit margin is 10%. Thus, the CLV is $80 x 4 x 2 x 10% = $32.The LTV figure will help the business know the future cash flows and the client base it will need to achieve profitability.

Why it matters

LTV metric can be used for crucial business decisions. For instance, it can be used to identify the most valuable client accounts and aim to retain them for longer periods.

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