Calculating Customer Lifetime Value

Resource Overview

This guide will help you learn what customer lifetime value (CLV) is, and how to calculate it in order to benefit your organization.

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Executive Summary

This How-To Guide details the definition of customer lifetime value (CLV), the advantages of calculating CLV and the standard formula for calculating CLV.

Common sense tells us that the longer a customer is in relationship with a company, the more profitable that customer relationship is.  However, many companies put the emphasis on new customer acquisition and not enough effort is made to retain existing customers.  This is a mistake, because the financial impact of retaining customers is substantial:  companies can increase profits by as much as 100% by retaining just 5% more of their customers.  For these reasons, CLV is a crucial metric that most organizations overlook mainly because its definition and purpose are not entirely known.  Understanding the monetary value each customer represents to your organization can help you budget correctly for your business needs, strategically plan your marketing initiatives and improve long-term relationships with your customer base. 

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