Definition: Customer Lifetime Value (CLV) is a metric that estimates the total revenue a business can expect from a single customer account throughout the entirety of their relationship. It helps businesses understand the long-term value of their customer base and informs strategies for customer acquisition, retention, and enhancement.
Calculation: CLV is typically calculated by multiplying the average purchase value, the average purchase frequency rate, and the average customer lifespan. This formula provides a quantitative measure of the projected net profit from the entire future relationship with a customer, allowing businesses to tailor their marketing efforts and budget allocations efficiently.
Importance: Understanding CLV enables companies to identify high-value customers, optimize marketing strategies, and allocate resources more effectively. By focusing on increasing the value of existing customers and extending their lifecycle, businesses can improve profitability, enhance customer loyalty, and achieve sustainable growth.
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