What is Customer Lifetime Value and Why Is It Important?
Customer Lifetime Value (CLV) attempts to determine the economic value a customer brings over their “lifetime” with the business. At the heart of understanding CLV lies the recognition that a customer does not represent a single transaction but a relationship that is far more valuable than any one-time exchange.
However, CLV is not about any one customer; it is about stepping back and taking a look at your customer base as a whole — understanding that while some never return and some never leave, on average there is a typical customer lifetime and that lifetime has a specific economic value.
Understanding Customer Lifetime Value is incredibly important for customer service professionals and for businesses of all types. Why?
Because if you don’t know what a client is worth, you don’t know what you should spend to get one or what you should spend to keep one.
For instance, if it costs you $100 to acquire a customer, and your customer’s CLV is $75, then we’ve got a problem Houston.
Understanding CLV allows you to drill down and understand the economic value of each customer, so you can make sound decisions about how much to invest in acquisition and retention.