The customer lifetime value or commonly known as CLV, is an essential metric for any business to track. Brands devote their time and resources to serve the best to their customers, in building a personal relationship with them so that customers keep coming back for more but we need a tool that correctly measures the lifetime returns through a customer.

So, what is CLV, exactly? As the name suggests, Customer Lifetime Value is a metric that gives the approximate value brought to the business by the relationship shared by brands and their customers. From a broader perspective, this value suggests the future value that can be earned through their current marketing initiatives.

CLV prefers the approach of optimizing ways to extract maximum value out of a customer rather than spending minimum costs. In other words, it focuses on the efficient use of resources towards acquiring and keeping a customer than acquiring lots of customers in a minimum amount.

To understand CLV it is important to understand that all customers are not the same for a business. While some customers bring less business, the others bring multifold. Investing in customers with a view of long-term profits is a smarter option than chasing a large number of small-win customers. It is also essential to understand that keeping a loyal customer happy is much cost-effective than acquiring a new one.

Why CLV is important to a business is not just to calculate future value but also to keep other aspects in consideration. It helps in better segmentation and targeting of customers, hence more optimized use of resources in terms of ad and marketing spend. It lowers the customer acquisition cost and boosts brand loyalty over time, helping customer retention. Studies reveal it is only a 5%-20% probability of closing a deal with a new customer while a 60%-70% probability of successfully selling to an existing customer. Selling to a repeated customer brings more profit to the business the measure of which is CLV. Not just pertaining to customers but CLV is an indicator of businesses’ health. It gives a closer insight into the effectiveness of the current acquisition and retention strategy of the business, brings into notice if the business is running after short-term profits or is stable and steady and aiming for long-term objective victories.