CLV, or customer lifetime value, is a metric that measures the total value of a customer to a business over the course of their relationship. This includes both the revenue generated from them as well as any associated costs, such as acquisition and retention.
CLV is important because it provides businesses with a way to measure and optimize for long-term profitability. By understanding how much each customer is worth, businesses can make decisions about where to allocate resources in order to maximize CLV.
There are several methods for calculating CLV, but the most common approach is to take the average revenue per customer multiplied by the average length of time they stay with the company. This gives you a rough estimate of how much each customer will contribute to your bottom line over their lifetime.
You can then use this information to make decisions about things like marketing spend and product development. For example, if you have a high CLV, you may be willing to invest more in acquiring new customers through marketing campaigns. Or, if you have a low CLV, you may need to focus on developing new products or services that will increase retention rates.
Ultimately, CLV is a valuable metric for understanding and growing your business in a sustainable way. By tracking CLV over time, you can ensure that you're making decisions that are focused on long-term success.