customer lifetime value
The total revenue a business expects to generate from a single customer account throughout their entire relationship.
Example
“With a $50/month subscription and average 3-year retention, the customer lifetime value was $1,800.”
Memory Tip
LTV = total revenue from one customer over their lifetime. LTV must exceed CAC to be sustainable.
Why It Matters
Understanding customer lifetime value helps you recognize the true worth of maintaining long-term relationships with businesses and service providers. For personal finance, it explains why companies offer loyalty programs and why it is sometimes worth switching to services that provide better long-term value even if the upfront cost is higher.
Common Misconception
Many people think customer lifetime value only refers to a single large purchase or transaction. In reality, it accounts for all purchases, repeat business, and referrals across an entire relationship, which can span years or decades and often exceeds initial expectations.
In Practice
A coffee shop customer who spends five dollars daily on average visits six days per week for ten years would generate a customer lifetime value of approximately fifteen thousand six hundred dollars. This calculation helps the shop justify spending fifty dollars to win back a lapsed customer or investing in quality to keep them coming back.
Etymology
CUSTOMER (buyer) LIFETIME (entire duration of relationship) VALUE (revenue generated). Total VALUE over the customer's LIFETIME.
Common Misspellings
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Related Terms
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See Also
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