Definition of Lifetime Value (LTV)
A prediction of the net profit attributed to the entire future relationship with a customer.
Explanation of Lifetime Value (LTV)
Lifetime value (LTV), also known as customer lifetime value (CLV), is a metric that estimates the total revenue a business can expect to earn from a customer over the entire duration of their relationship. This metric helps businesses understand the long-term value of acquiring and retaining customers, informing decisions about marketing, sales, and customer service strategies. Calculating LTV involves considering factors such as average purchase value, purchase frequency, customer retention rate, and the length of the customer relationship. By comparing LTV with customer acquisition cost (CAC), businesses can assess the profitability of their customer base and the effectiveness of their marketing efforts. A high LTV indicates that customers are generating significant revenue over time, justifying investments in acquisition and retention initiatives. Businesses can increase LTV by enhancing customer satisfaction, encouraging repeat purchases, and implementing loyalty programs. Understanding and optimizing LTV helps businesses build sustainable growth, improve customer relationships, and maximize profitability.