Customer lifetime value (CLV) is a predictive model that estimates the total financial value of a particular customer to a company over the life of the relationship.
The relevance of customer lifetime value in marketing
Customer lifetime value is essential for marketing decision makers. In fact, it places a financial value on each customer group and provides comprehensive information for resource allocation, customer relationship management, and data-driven decisions within an organization. This is closely related to the target group and the buyer. By identifying the customer groups with the highest CLV, marketing teams can focus their efforts on these lucrative segments.
Customer lifetime value is specifically critical to growth marketing efforts because it’s all about increasing a company’s revenue and customer base.
How is the Customer Lifetime Value calculated?
Calculating CLV requires the collection and analysis of customer purchase trends, purchase history, product and service lifecycles, and other specific information. In essence, CLV is calculated as the discounted value of future profits that a customer will generate over the life of the business relationship.