Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is the predicted net profit attributed to the entire future relationship with a customer. It's calculated by multiplying average purchase value by purchase frequency and average customer lifespan. CLV helps determine acceptable customer acquisition costs (CAC) and guides resource allocation for retention versus acquisition. Advanced models incorporate discount rates for future revenue and segment customers by value tiers. Marketing teams use CLV to identify high-value audience segments, optimize channel mix, and justify investments in customer experience improvements that extend relationship duration. For subscription businesses, CLV includes churn rate calculations and often exceeds acquisition costs by 3-5x for profitable customers.