Customer lifetime value (CLV) describes the net present value of the stream of future profits expected over the customer’s lifetime purchases. The company must subtract from its expected revenues the expected costs of attracting, selling, and servicing the account of that customer, applying the appropriate discount rate (say, between 10 percent to 20 percent, depending on cost of capital and risk attitudes). Lifetime vale calculations for a product or service can add up to tens of thousands of dollars or even into six figures.
Definition