What is CLV?
It is important for a company to know how much its customers are worth. To make that calculation, you can make use of Customer Lifetime Value, which indicates what the total value of a customer is. CLV is also called customer value or customer lifetime value.
Customer Lifetime Value is useful to know, for example, when your company needs to plan how much to spend on marketing to acquire new customers.
When calculating your company's CLV, you need to know:
- How long customers are with the company
- What annual profit there is per customer
- How much money is spent on attracting new customers
To find out how much your customers are worth, you need to do the math:
Lifetime * annual profit - attraction price = CLV.
Find your company's CLV and get the most out of your marketing dollars
Knowing your company's Customer Lifetime Value makes it easier to assess how much to spend on marketing to a particular customer group. This can ultimately benefit your business and the user experience you provide to customers.
For example, if a customer adds $1,000 to the company's bottom line on the first trade, it would be natural to think that less than $1,000 must have been spent to attract the customer in order to generate a profit.
But if the customer subsequently buys 20 times more, it may well have been well worth spending a lot more money to attract the customer in the first place.
