What is customer lifetime value?

What is customer lifetime value?

• A. The total revenue of a company over a year
• B. The worth of a customer over their lifetime of doing business with an organization
• C. The average order value
• D. The number of customers acquired in a month

Answer: (B)

Customer lifetime value measures the worth of a customer over the entire relationship with the organization. It’s the estimated value you can expect from one customer across the time they stay with the brand, usually considering revenue they generate minus the costs to serve them, and often incorporating how long that relationship lasts. This long-term view helps you decide how much to invest in acquiring and retaining customers; if the lifetime value is high relative to your acquisition costs, it's worth spending more to win and keep that customer. It’s different from annual revenue (which captures a single period) and from metrics like average order value or the number of new customers in a month, which don’t reflect long-term profitability across a customer’s entire lifecycle.

Customer lifetime value measures the worth of a customer over the entire relationship with the organization. It’s the estimated value you can expect from one customer across the time they stay with the brand, usually considering revenue they generate minus the costs to serve them, and often incorporating how long that relationship lasts. This long-term view helps you decide how much to invest in acquiring and retaining customers; if the lifetime value is high relative to your acquisition costs, it's worth spending more to win and keep that customer. It’s different from annual revenue (which captures a single period) and from metrics like average order value or the number of new customers in a month, which don’t reflect long-term profitability across a customer’s entire lifecycle.