Definition: Customer Lifetime Value (CLV) is a metric that estimates the total revenue a business can expect from a single customer account throughout the entire business relationship. It helps companies understand the long-term value of customer retention versus acquisition efforts.
Calculation: CLV is calculated by multiplying the average purchase value, purchase frequency, and customer lifespan. It requires analyzing historical purchase data to determine average revenue per customer and projecting future interactions, considering factors such as customer churn rate and retention strategies.
Importance: CLV is crucial for strategic decision-making in marketing and sales, allowing businesses to allocate resources efficiently. By understanding CLV, companies can focus on high-value customer segments, tailor marketing efforts to increase customer retention, and enhance profitability by optimizing customer acquisition costs versus expected lifetime revenue.
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