Customer Lifetime Value (CLV)

Customer lifetime value (CLV) is a metric that estimates the total value a customer brings to a business over the duration of their relationship with the business. It is an important concept for businesses because it helps them understand the long-term revenue potential of a customer, and helps them make decisions about how much to invest in acquiring and retaining customers.

Definition

$CustomerLifetimeValue(CLV)=(ARPA\times \ GrossMargin)/ChurnRate$

Details

ARPA

• Average Revenue Per Account
• ARPA is calculated by dividing the total revenue generated by the number of customers or accounts in the same period

Gross Margin

• Financial metric that measures the profitability of a company's products or services after deducting the costs of the service
• Costs of service might include application hosting costs, customer service, third-party software licenses, etc.

Churn Rate

• The rate at which customers or subscribers discontinue using a product or service over a given period of time.

Standardization Status

Request for Comments (RFC): 23/0105 - Customer Lifetime Value(CLV)
Type: metric
Version: 0.9
Status:proposal

See also

• Churn Rate
• Goss Margin

Sources

• Guide to Understanding Customer Lifetime Value (CLV) (www.wallstreetprep.com)