Lifetime Value (LTV or CLV)

Lifetime value, or customer lifetime value (CLV), is a metric that represents...

Lifetime value, or customer lifetime value (CLV), is a metric that represents a customer’s spend on your business during their lifetime. LTV and CLV can be differentiated as LTV represents an aggregate metric whereas CLV represents an individual customer value against the profit margin.

Why would I need this?

This figure informs businesses about how much money to invest in acquiring new customers and retaining existing ones.

It’s important to understand that a customer’s value might not just be large short-term sales, but small sales over a long period of time. Optimising the lifetime value of existing customers is essential for a company to sustain a viable business model. 

How does it work?

CLV is a gauge of the profit associated with a customer relationship. This should guide how much businesses are willing to invest to maintain that relationship. If a customer lifetime value is $1000, you wouldn’t spend more than that to try and keep the relationship as it wouldn’t be profitable.

For example, the CLV of a someone who buys a sandwich from the same shop easy day could be higher than $100,000, depending on how many sandwiches they eat a week and where they buy it. On the other hand, someone who buys a house twice in their life might only be worth $20,000 to a real estate agent, because while the value of the purchase is larger than a sandwhich, the percentage paid to an agent is only a fraction of that.

Real world examples 

The Financial Times extends Essence partnership to consolidate media planning and buying

Why big spenders are not your best customers

How Beano and Flavourly used data to boost audiences and sales