What does “customer lifetime value” (CLV) predict?

Customer lifetime value (CLV) is a metric that quantifies the total value a customer is expected to bring to a business over the entirety of their relationship. This prediction encompasses various factors, including the frequency and amount of purchases a customer makes, their loyalty to the brand, and the overall profitability generated from that customer. By understanding CLV, businesses can make informed decisions regarding marketing investments, customer acquisition strategies, and retention efforts, aiming to enhance long-term profitability.

While annual revenue from a single product and the average lifespan of a customer relationship are important metrics, they do not fully encapsulate the broad perspective of CLV, which considers the cumulative financial benefit derived from a customer. Similarly, the total cost of acquiring a new customer provides insight into initial investment but is not directly aligned with the broader, long-term value that CLV assesses. Hence, the total value prediction is a more holistic view that integrates ongoing customer interactions and their overall impact on business revenue.