Customer lifetime value (CLV) is a prediction of the total value of future cash flows associated with the purchases of a customer. It is typically calculated as the total net profit for all predicted customer purchases discounted to present value. It can be represented as an average across all customers or a prediction for a particular account. It can also be modeled by factors such as demographic or segment. Customer lifetime value can be inaccurate due to estimate error, business risks and the general impossibility of predicting the future with certainty.
It is common to use customer lifetime value to calculate the return on marketing initiatives such as advertising. For example, it is often compared to customer acquisition cost. CLV is typically used by large organizations to evaluate long term investments in marketing and customer service.
This is the complete list of articles we have written about marketing metrics.
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