Glossary
What is customer lifetime value (CLV)?
Definition
Customer lifetime value (CLV) is the total revenue or profit a business can expect from a single customer over the entire length of their relationship. It looks beyond a first purchase to include repeat business over time. CLV helps a business decide how much it can reasonably spend to acquire and keep customers.
01How customer lifetime value is estimated
A common approach multiplies the average value of a purchase by how often a customer buys and by how long they typically stay, sometimes adjusted for profit margin. Because it projects into the future, CLV is an estimate rather than an exact figure. Businesses refine it as they gather more data on retention and repeat purchases.
02Why CLV matters
Knowing a customer's lifetime value tells a business the ceiling on what it can spend to win that customer while staying profitable. It also highlights the payoff of retention, since keeping existing customers is often cheaper than acquiring new ones. For small businesses, CLV reframes each booking as the start of a potentially long, recurring relationship.
Frequently asked questions
Why is customer lifetime value useful?
It shows the long-term worth of a customer, helping a business set a sensible acquisition budget and prioritize retention rather than judging profitability on a single sale.
Is CLV based on revenue or profit?
It can be calculated either way. A revenue-based CLV counts total sales, while a profit-based CLV subtracts costs to reflect the actual margin a customer generates.
Related terms
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