Customer Lifetime Value (CLV)
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Customer Lifetime Value (CLV) is a key business metric that estimates the total revenue a business can expect from a single customer over the entire duration of their relationship.
Formula (basic version):
CLV=Average Purchase Value×Purchase Frequency×Customer Lifespan\text{CLV} = \text{Average Purchase Value} \times \text{Purchase Frequency} \times \text{Customer Lifespan}
Example:
If a customer:
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Spends $50 per order
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Buys 10 times per year
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Stays loyal for 3 years
Then:
CLV=50×10×3=$1,500\text{CLV} = 50 \times 10 \times 3 = \text{$1,500}
Why CLV Matters:
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Marketing Efficiency: Helps decide how much to spend acquiring new customers.
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Retention Focus: Highlights the value of keeping existing customers.
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Segment Prioritization: Identifies high-value customer groups.
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Revenue Forecasting: Guides long-term planning and budgeting.
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