What does Customer Lifetime Value (CLV) predict?

Customer Lifetime Value (CLV) is a metric that predicts the total profit associated with a customer's relationship with a business over the entire duration of that relationship. It takes into account not only the initial sale but also the ongoing revenue that can be generated from repeat purchases, upselling, and cross-selling opportunities over time. This prediction is crucial for businesses as it helps them understand how much they can afford to spend on acquiring new customers and retaining existing ones while still achieving profitability.

By focusing on the long-term profitability of customer relationships, CLV allows businesses to make informed marketing and sales strategies aimed at maximizing customer value. Understanding CLV helps businesses steer their efforts toward high-value customers, ensuring efficient allocation of resources and enhancing overall customer relationship management.