It is the present value of the future cash flows attributed to the customer during the entire relationship with the company.
“CLV helps you think about how to optimize your acquisition spending for maximum value rather than minimum cost.”
Customer lifetime value is an important concept in that it encourages firms to shift their focus from quarterly profits for the long-term health of their customer relationships
Business decisions about sales, marketing, product development, and customer support.
- Marketing: How much should I spend to acquire a customer?
- Product: How can I offer products and services tailored for my best customers?
- Customer Support: How much should I spend to service and retain a customer?
- Sales: What types of customers should sales reps spend the most time on trying to acquire?
Customer Lifetime Value Benefits
- Measure and demonstrate the bottom-line financial impact of market expansion activities
- Clearly align marketing programs with financial objectives and targets
- Scenario tests a range of possible strategic marketing directions
- Balance the competing needs of short-term profitability and longer term goals,
- Understand the bottom-line profit contribution of different customer segments
- Demonstrate a long-term financial return for a range of marketing investments
- The effective management of the customer relationship will result in enhanced profitability over time.