Customer Lifetime Value (CLV)
The prediction of the net profit attributed to the entire future relationship with a customer.
Problem it addresses
Businesses need to understand how valuable a customer is to them in the long term to make informed decisions about how much money to invest in acquiring new customers and retaining existing ones. Without this understanding, companies might overspend on acquisition and not invest enough in retention, leading to inefficiencies in marketing spending.
How it helps
Calculating CLV helps businesses develop strategies to maximize profits by identifying the most profitable customer segments. It encourages investment in customer satisfaction and retention programs, as keeping a customer is generally more cost-effective than acquiring a new one. Understanding CLV also assists in making targeted marketing and product development decisions that cater to the most valuable customers.