What does customer lifetime value (CLV) represent?

Customer lifetime value (CLV) is a critical metric that represents the total revenue expected from a customer over the duration of their relationship with a business. This concept emphasizes the importance of not just focusing on a single transaction but rather understanding the long-term value of maintaining customer relationships. CLV incorporates various factors, such as repeat purchases, frequency of transactions, and the average order value, helping businesses to assess how much they can afford to invest in acquiring and retaining customers.

By analyzing CLV, companies can make informed decisions about marketing strategies, customer service improvements, and product development aimed at enhancing customer satisfaction and loyalty. It serves as a powerful tool for forecasting future revenue and identifying the most profitable customer segments. This metric enables businesses to prioritize customer retention activities, as retaining existing customers is often more cost-effective than acquiring new ones.