Customer lifetime value

Marketing operations
Key concepts

In marketing, customer lifetime value (CLV or often CLTV), lifetime customer value (LCV), or life-time value (LTV) is a prognostication of the net profit contributed to the whole future relationship with a customer. The prediction model can have varying levels of sophistication and accuracy, ranging from a crude heuristic to the use of complex predictive analytics techniques.

Customer lifetime value can also be defined as the monetary value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship.[1] Customer lifetime value is an important concept in that it encourages firms to shift their focus from quarterly profits to the long-term health of their customer relationships. Customer lifetime value is an important metric because it represents an upper limit on spending to acquire new customers.[2] For this reason it is an important element in calculating payback of advertising spent in marketing mix modeling.

One of the first accounts of the term "customer lifetime value" is in the 1988 book Database Marketing, which includes detailed worked examples.[3] Early adopters of customer lifetime value models in the 1990s include Edge Consulting and BrandScience.

  1. ^ Lars Groeger, Francis Buttle (2015). "Customer Lifetime Value". Wiley Encyclopaedia of Management: 1–3. doi:10.1002/9781118785317.weom090070. ISBN 9781118785317.
  2. ^ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0137058292. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language: Marketing Activities and Metrics Project.
  3. ^ Shaw, R. and M. Stone (1988). Database Marketing, Gower, London.