What is customer lifetime value (CLV)?

Customer lifetime value (CLV) is defined as the total value a customer is expected to bring over the duration of their relationship with a business. This metric is crucial because it helps businesses understand the long-term value of acquiring and retaining customers, guiding marketing and sales strategies.

By focusing on the total value generated by a customer over time, businesses can better allocate resources and make informed decisions about how much to invest in customer acquisition and retention efforts. CLV encompasses various factors, such as repeat purchases, customer loyalty, and the duration of the customer relationship, making it a comprehensive measure of customer worth to the business.

In contrast, other choices either focus on specific aspects of customer behavior or provide narrower or unrelated metrics, such as predicting future purchases, calculating monthly revenue, or averaging transaction values, which do not fully capture the long-term relationship and value of customers as CLV does. Therefore, understanding CLV is essential for effective marketing and financial planning in a business context.