What is customer lifetime value?

Customer Lifetime Value (CLTV) is a vital marketing metric that predicts the potential profit a particular customer can bring to your business.

The core concept behind CLTV is to calculate the amount of money a client can potentially give your company during the entire relationship to determine whether a given customer is profitable for the business.

A clear indicator of the client’s profitability is received through a sophisticated analysis of his or her LTV compared to CAC (Customer Acquisition Cost – the amount of money you spend to acquire a client).

Techniques for calculating customer lifetime value


The prediction model can be quite simple – e.g. take an average amount of money a client pays you each month, multiply the sum by the contract duration, and you will get a customer’s LTV.

For more accuracy, businesses use more sophisticated predictive analytics models.
 

Customer lifetime value

Predictive analytics

 

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