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Customer Lifetime Value (CLV)

Part 1. Marketing Strategy

  1. Katherine N. Lemon1,
  2. Loren J. Lemon2

Published Online: 15 DEC 2010

DOI: 10.1002/9781444316568.wiem01014

Wiley International Encyclopedia of Marketing

Wiley International Encyclopedia of Marketing

How to Cite

Lemon, K. N. and Lemon, L. J. 2010. Customer Lifetime Value (CLV). Wiley International Encyclopedia of Marketing. 1.

Author Information

  1. 1

    Boston College, Chestnut Hill, MA, USA

  2. 2

    KNL Associates, LLP, Lexington, MA, USA

Publication History

  1. Published Online: 15 DEC 2010

Abstract

Customer lifetime value (CLV) is defined as the net profit from a customer (customer margin less the costs of acquiring and serving the customer) over the lifetime of the customer's relationship with the firm, discounted to the present. While the terminology may vary from model to model, the essential elements of CLV estimation consist of the following: acquisition cost, time interval, net profit, retention rate, and discount rate. CLV estimations can be made for a specific customer, specific customer segment, or a generalized calculation based on the firm's generalized experience for its customers. CLV is useful in assisting a firm in making a determination of whether any new initiatives by the firm are worthwhile. For example, initiatives focusing on acquiring new customers can be evaluated to determine whether the costs of such new initiates may be worth it given the potential expected future profits from such customers. Initiatives focusing on current customer (either to increase the revenues from existing customer or improving the retention rate for such customers) can be evaluated by first estimating the CLV for such customers prior to the initiative and then reestimating the expected CLV with the new initiatives.

Keywords:

  • customer lifetime value;
  • customer equity;
  • customer management