Terms

Customer Lifetime Value

Customer lifetime value is the total revenue a business expects to generate from a single customer throughout their entire relationship with the company. Rather than focusing on a single purchase, it accounts for all potential transactions over the customer's lifespan. Consequently, it provides a more holistic view of a customer's worth, informing strategies for retention and growth.

Importance of Customer Lifetime Value

Tracking customer lifetime value is vital as retaining customers is more cost-effective than acquiring new ones. It helps businesses identify their most valuable patrons, enabling smarter resource allocation. This focus optimizes marketing spend and boosts profitability.

CLV also offers insights that drive long-term growth and loyalty. Understanding top customer traits helps refine acquisition strategies and product offerings. This knowledge allows companies to proactively reduce churn and strengthen relationships.

Strategies to Increase Customer Lifetime Value

Increasing customer lifetime value involves nurturing relationships to encourage repeat business and long-term loyalty. By focusing on the entire customer journey, companies can implement targeted strategies that enhance satisfaction and drive revenue.

  • Onboarding: Streamline the initial customer experience to demonstrate value quickly and set a positive tone.
  • Personalization: Tailor communications and offers based on customer data to create more relevant, engaging interactions.
  • Loyalty: Implement reward programs and special recognition for top customers to incentivize repeat purchases.
  • Feedback: Actively collect and respond to customer input to resolve issues and show they are valued.

Customer Lifetime Value vs. Customer Equity

While related, these two metrics offer different perspectives on customer value.

  • Customer Lifetime Value: This metric calculates the total revenue from an individual customer, making it ideal for segmentation and retention tactics. While powerful, predictive CLV can be complex to calculate. Enterprises often use predictive models, while mid-market firms may start with simpler historical calculations.
  • Customer Equity: This represents the total CLV of all customers combined, offering a macro view of the customer base's value as a company asset. It is excellent for high-level strategic planning but less actionable for individual targeting. Enterprises use it for valuation, while mid-market companies often focus on CLV first.

Measuring Customer Lifetime Value

This is how you can calculate customer lifetime value.

  1. Calculate average purchase value by dividing total revenue by the number of purchases in a period.
  2. Find the average purchase frequency by dividing the number of purchases by unique customers.
  3. Determine customer value by multiplying the average purchase value by the average purchase frequency.
  4. Multiply customer value by the average customer lifespan to find the final CLV.

Impact of Customer Lifetime Value on Business Growth

Focusing on customer lifetime value is a powerful strategy for driving sustainable business growth.

  • Profitability: Increases revenue by prioritizing cost-effective retention over expensive new customer acquisition.
  • Strategy: Guides resource allocation by identifying and focusing on the most valuable customers.
  • Loyalty: Reduces churn through targeted initiatives that build stronger, long-term customer relationships.

Frequently Asked Questions about Customer Lifetime Value

How does CLV relate to Customer Acquisition Cost (CAC)?

CLV projects the total revenue from a customer, while CAC measures the cost to acquire one. A healthy business model requires a CLV significantly higher than its CAC, ensuring long-term profitability from your marketing and sales efforts.

Is calculating CLV too complex for smaller businesses?

Not at all. While enterprises use predictive models, smaller companies can start with historical CLV. This simpler calculation still provides powerful insights for improving customer retention and identifying your most valuable segments without requiring extensive resources.

How often should we recalculate CLV?

Recalculate CLV quarterly or annually to track trends and measure the effectiveness of your retention strategies. The ideal frequency depends on your business cycle and how quickly customer behavior changes in your industry.

Other terms

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Content Delivery Network

A Content Delivery Network (CDN) is a system of distributed servers that deliver web content to users based on their geographic location.

Content Delivery Network

Sales Rep Training

Sales rep training is the process of equipping your sales team with the skills, knowledge, and tools to effectively sell and hit their targets.

Sales Rep Training

80/20 Rule

The 80/20 rule, or Pareto Principle, posits that 80% of results come from just 20% of the effort. It's a key concept for prioritization.

80/20 Rule

Agile Methodology

Agile methodology is an iterative approach to project management and software development, focusing on delivering value in small, incremental steps.

Agile Methodology

BANT Framework

Learn about BANT framework, including implementing BANT in sales strategy, advantages of the BANT methodology, & BANT vs. other qualification models.

BANT Framework

Marketing Performance

Marketing performance is the process of measuring a campaign's effectiveness against set goals using key metrics like ROI and conversion rates.

Marketing Performance

Horizontal Market

A horizontal market is one where a product or service is designed to meet a common need for a wide array of customers, regardless of their industry.

Horizontal Market

Brand Awareness

Learn about brand awareness, including understanding its importance, building an effective strategy, key metrics to track, & examples in the real world.

Brand Awareness

Consideration Buying Stage

The consideration buying stage is where potential customers have defined their problem and are now actively researching and evaluating solutions.

Consideration Buying Stage

Funnel Analysis

Funnel analysis is a method for understanding the steps users take to complete a goal, revealing where they drop off in the conversion process.

Funnel Analysis

Request for Proposal

A Request for Proposal (RFP) is a formal document that outlines a project's needs and invites qualified vendors to submit bids to complete it.

Request for Proposal

CRM Enrichment

CRM enrichment is the process of adding third-party data to your existing customer profiles to make them more complete and accurate.

CRM Enrichment

Account-Based Marketing

Account-Based Marketing (ABM) is a focused B2B strategy where marketing and sales collaborate to target and convert high-value accounts.

Account-Based Marketing

Jobs to Be Done Framework

The Jobs to Be Done (JTBD) framework focuses on understanding customer needs by identifying the specific 'job' they are trying to accomplish.

Jobs to Be Done Framework

B2C2B

Learn about B2C2B, including how B2C2B transforms sales, key strategies for B2C2B success, & differences between B2C2B and B2B2C.

B2C2B

Progressive Web Apps

Progressive Web Apps (PWAs) are websites that look and feel like native mobile apps, offering features like offline access and push notifications.

Progressive Web Apps

SEO

SEO, or Search Engine Optimization, is increasing the quantity and quality of traffic to your website through organic search results.

SEO

Nurture

Nurture is the process of building relationships with potential customers, guiding them through the sales funnel with personalized communication.

Nurture

Buying Criteria

Buying criteria are the specific requirements and standards a customer uses to evaluate products or services before making a decision.

Buying Criteria

User Experience

User Experience (UX) refers to a person's overall feelings and perceptions while interacting with a product, system, or service.

User Experience

Sales Prospecting

Sales prospecting is the process of identifying potential customers, or prospects, and initiating contact to convert them into paying customers.

Sales Prospecting

Integration Testing

Integration testing is a software testing phase where individual modules are combined and tested together to verify their interaction.

Integration Testing

Sales Kickoff

A sales kickoff (SKO) is an annual event for a sales team to celebrate wins, align on goals, and get motivated for the upcoming year.

Sales Kickoff

Master Service Agreement

A Master Service Agreement (MSA) is a foundational contract that sets the general terms for an ongoing business relationship between two parties.

Master Service Agreement

DevOps

DevOps is a culture and set of practices that merges software development (Dev) and IT operations (Ops) to shorten development cycles.

DevOps

Lead Generation Software

Lead generation software helps businesses automate finding and capturing potential customers' contact information to build sales pipelines.

Lead Generation Software

Bottom of the Funnel

Learn about bottom of the funnel, including maximizing conversions at the funnel's end, & strategies for nurturing bottom-funnel leads.

Bottom of the Funnel

Quality Assurance

Quality Assurance (QA) is the systematic process of ensuring a product or service meets specified quality standards from development to delivery.

Quality Assurance

Draw on Sales Commission

A draw on commission is an advance payment a salesperson receives against future earnings, which is later repaid from earned commissions.

Draw on Sales Commission

Logo Retention

Logo retention is a key B2B metric that measures a company's ability to retain its customers, or 'logos,' over a specific period.

Logo Retention

Google Analytics

Google Analytics is a web analytics service that tracks and reports website traffic, offering insights into user behavior and marketing effectiveness.

Google Analytics

Customer Relationship Management Hygiene

CRM hygiene involves regularly cleaning and updating your customer data to ensure your CRM system remains a powerful and reliable tool.

Customer Relationship Management Hygiene

Sales Funnel

A sales funnel is a model illustrating the customer's journey from initial awareness to the final purchase, narrowing down leads at each stage.

Sales Funnel

X-Sell

X-Sell, or cross-selling, is a sales strategy of selling additional, related products or services to an existing customer base.

X-Sell

Email Marketing

Email marketing is a digital strategy where businesses send targeted emails to prospects and customers to build relationships and drive sales.

Email Marketing

Artificial Intelligence in Sales

AI in sales uses smart technology to automate repetitive tasks, analyze customer data, and help sales reps close deals more efficiently.

Artificial Intelligence in Sales

Sales Forecast Accuracy

Sales forecast accuracy is a key metric that compares your predicted sales revenue against the actual sales revenue you ultimately achieve.

Sales Forecast Accuracy

Latency

Latency is the delay between a user's action and a system's response. It's the time it takes for a data packet to travel to its destination.

Latency

Sales Presentation

A sales presentation is a formal pitch by a salesperson to a prospective customer, showcasing a product or service to secure a sale.

Sales Presentation

Canary Releases

A canary release is a deployment strategy where new software is rolled out to a small user group first, minimizing risk before a full release.

Canary Releases

Lightning Components

Lightning Components is a UI framework for building dynamic web apps for mobile and desktop devices on the Salesforce Lightning Platform.

Lightning Components

Buyer Behavior

Learn about buyer behavior, including understanding the buyer's journey, influencing factors in buyer behavior, & buyer behavior and marketing strategy.

Buyer Behavior

Account-Based Marketing Benchmarks

Account-Based Marketing (ABM) benchmarks are key metrics used to measure the performance and success of your targeted account strategies.

Account-Based Marketing Benchmarks

Persona Map

A persona map visually outlines a target customer, detailing their goals, behaviors, and pain points to help your team build genuine empathy.

Persona Map

Account-Based Analytics

Account-Based Analytics measures engagement and impact across target accounts, not just individual leads, to guide B2B sales and marketing efforts.

Account-Based Analytics

B2B Contact Base

Learn about B2B contact base, including building an effective B2B contact base, & strategies for expanding your contact base.

B2B Contact Base

B2B Demand Generation Strategy

Learn about B2B demand generation strategy, including key elements of demand generation, & crafting your demand generation plan.

B2B Demand Generation Strategy

Omnichannel Sales

Omnichannel sales is a strategy that integrates all physical and digital sales channels to create a seamless, unified customer experience.

Omnichannel Sales

Marketing Qualified Account

A Marketing Qualified Account (MQA) is a target company that has shown significant engagement, indicating it's ready for the sales team to pursue.

Marketing Qualified Account

Customer Data Analysis

Customer data analysis is the process of examining customer information to uncover insights that drive business decisions and improve experiences.

Customer Data Analysis

Marketing Operations

Marketing Operations (MOps) is the engine of a marketing team, managing the technology, processes, and people to run campaigns effectively.

Marketing Operations

Kubernetes

Kubernetes is an open-source system for automating the deployment, scaling, and management of containerized applications.

Kubernetes

XML

XML (Extensible Markup Language) is a markup language for encoding documents in a format that is both human-readable and machine-readable.

XML

Conversion Path

A conversion path is the journey a visitor takes to complete a desired goal, such as making a purchase, filling out a form, or subscribing.

Conversion Path

Sales Key Performance Indicators

Sales Key Performance Indicators (KPIs) are quantifiable metrics used to measure how effectively a sales team is achieving its key objectives.

Sales Key Performance Indicators

Sales Calls

A sales call is a real-time conversation between a salesperson and a prospect, aiming to persuade them to purchase a product or service.

Sales Calls

Sales Prospecting Techniques

Sales prospecting techniques are methods used by sales teams to identify, contact, and qualify potential customers, also known as prospects.

Sales Prospecting Techniques

Hybrid Sales Model

A hybrid sales model blends traditional and digital sales methods to engage customers across multiple channels and buying preferences.

Hybrid Sales Model

Marketing Analytics

Marketing analytics involves measuring and analyzing marketing data to understand campaign performance and improve return on investment (ROI).

Marketing Analytics

A/B Testing

A/B testing is a method of comparing two versions of something, like a webpage or email, to determine which one performs better with your audience.

A/B Testing

Data Encryption

Data encryption translates data into another form, or code, so that only people with access to a secret key or password can read it.

Data Encryption

Buyer Intent

Learn about buyer intent, including understanding buyer intent signals, strategies to capture buyer intent, & buyer intent vs. customer interest.

Buyer Intent

Compliance Testing

Compliance testing ensures a product or system adheres to specific regulations, standards, or policies set by governing bodies or organizations.

Compliance Testing

Geo-Fencing

Geo-fencing creates a virtual boundary around a real-world location. It triggers actions on a device when it enters or exits this area.

Geo-Fencing

Business Process Management

Learn about business process management, including benefits of implementing BPM, steps to effective BPM, common BPM mistakes to avoid, & BPM tools and software.

Business Process Management

Spiff

A spiff is a short-term sales incentive, often a cash bonus, paid directly to a salesperson for selling a specific product or service.

Spiff

Feature Flags

Feature flags let you remotely control features in your app without new code. This enables safe testing, gradual rollouts, and quick rollbacks.

Feature Flags

Brand Loyalty

Learn about brand loyalty, including how to build brand loyalty, benefits of brand loyalty, measuring brand loyalty, & strategies for increasing loyalty.

Brand Loyalty

API

An API (Application Programming Interface) is a software intermediary that allows two applications to talk to each other and exchange information.

API

Digital Analytics

Digital analytics is the analysis of data from digital channels to understand user behavior and optimize online experiences for business goals.

Digital Analytics

Mid-Market

Mid-market companies are businesses larger than small businesses but smaller than large enterprises, often defined by revenue or employee size.

Mid-Market

Awareness Buying Stage

The awareness stage is the first step in the buyer's journey, where a potential customer realizes they have a problem or an opportunity to explore.

Awareness Buying Stage

Account-Based Selling

Account-Based Selling is a B2B strategy where sales and marketing treat high-value accounts as markets of one, using personalized outreach.

Account-Based Selling

Complex Sale

A complex sale features a long sales cycle, multiple stakeholders, and a high-value transaction, demanding a strategic, consultative approach.

Complex Sale

Channel Partner

A channel partner is a company that works with a manufacturer or producer to market and sell their products, software, or services to customers.

Channel Partner

SPIN Selling

SPIN selling is a sales technique using a sequence of questions—Situation, Problem, Implication, Need-Payoff—to uncover a buyer's needs.

SPIN Selling

Inbound Sales

Inbound sales attracts interested prospects who've engaged with your brand, letting sales reps connect with warm leads instead of cold outreach.

Inbound Sales

ETL

ETL, short for Extract, Transform, Load, is a data integration process for moving raw data from various sources to a central data warehouse.

ETL

Cost Per Click (CPC)

Cost Per Click (CPC) is a digital advertising model where an advertiser pays a fee each time one of their ads gets clicked by a user.

Cost Per Click (CPC)

B2B Sales

Learn about B2B sales, including key strategies for B2B success, types of B2B sales models, & B2B vs. B2C sales: understanding the differences.

B2B Sales

Tire-Kicker

A tire-kicker is a prospect who shows interest in a product but has no intention of buying, wasting a salesperson's time and resources.

Tire-Kicker

Call Disposition

Call disposition is the process of labeling the outcome of a call. It helps sales teams track interactions and plan their next steps effectively.

Call Disposition

Accessibility Testing

Accessibility testing is a software testing method that verifies an application is usable by people with disabilities, like vision or hearing loss.

Accessibility Testing

Direct Sales

Direct sales involves selling products directly to consumers in a non-retail setting, such as at home, online, or person-to-person.

Direct Sales

Lead Response Time

Lead response time is the duration between a potential customer showing interest and your team's first point of contact with them.

Lead Response Time

Consumer Relationship Management

Consumer Relationship Management (CRM) is a strategy for managing all of a company's relationships and interactions with its customers.

Consumer Relationship Management

Serviceable Obtainable Market

Serviceable Obtainable Market (SOM) is the portion of the market you can realistically capture with your current resources, sales, and marketing.

Serviceable Obtainable Market

Trademarks

Think of a trademark as a brand's unique signature—a word, symbol, or phrase that legally protects its identity and sets it apart from the rest.

Trademarks

Zero-Based Budgeting (ZBB)

Zero-based budgeting (ZBB) is a method where all expenses are re-evaluated and must be justified from scratch for each new budget period.

Zero-Based Budgeting (ZBB)

Sales Champion

A sales champion is your internal advocate at a target company. They believe in your product and help you push the deal forward to close.

Sales Champion

Customer Experience

Customer experience (CX) is a customer's total perception of your business, based on every interaction across the entire customer lifecycle.

Customer Experience

Email Deliverability Rate

Your email deliverability rate is the percentage of sent emails that successfully land in a recipient's inbox, rather than bouncing or going to spam.

Email Deliverability Rate

Lead Qualification

Lead qualification is the process of determining which prospects are most likely to become paying customers based on predefined criteria.

Lead Qualification

Mobile App Analytics

Mobile app analytics involves collecting and analyzing data from mobile apps to understand user behavior and optimize the app's performance.

Mobile App Analytics

Intent-Based Leads

Intent-based leads are potential customers whose online actions—like searches or content engagement—signal a clear interest in buying a solution.

Intent-Based Leads

Landing Pages

A landing page is a standalone web page created for a marketing campaign. It’s where a visitor “lands” after clicking an ad or email link.

Landing Pages

Demand Capture

Demand capture is the strategy of engaging potential customers who are already actively looking for a solution that your company provides.

Demand Capture

Voice Broadcasting

Voice broadcasting is an automated system that delivers a pre-recorded voice message to a large list of phone numbers simultaneously.

Voice Broadcasting

Marketing Automation Platform

A marketing automation platform is software that automates marketing actions. It helps manage tasks like email campaigns and lead nurturing.

Marketing Automation Platform

Warm Outreach

Warm outreach is contacting prospects with whom you have a pre-existing connection, like a mutual contact, making your message more personal and effective.

Warm Outreach