What is Customer Lifetime Value (CLV)?
CLV measures the monetary value of an individual customer relationship, taking into consideration both backward and forward looking. It computes the value of past customers and uses the historical data to project future values. CLV can become very useful for markers and analysts:
- To determine how much to spend to acquire a customer
- To determine how aggressively to spend to retain a particular customer or group of customers
- To value a company
Mathematically, CLV is the discounted sum of all future customer revenue streams minus product and serving costs and remarketing costs. Be default, the present value of CLV calculation is extended up to infinity:
Noted that the above formula is for the case when customer pays before using the service e.g. apartment rentals, Netflix. For cases when customer can pay after using the service:
Brand Equity and CLV
Source: Stahl, Florian, Mark Heitmann, Donald Lehmann, Scott Neslin, “The Impact of Brand Equity on Customer Acquisition, Retention, and Profit Margin,” Journal of Marketing, 76(4), 44-63.