What is Customer Lifetime Value (CLV)?

Customer lifetime value (CLV) is a measure of how profitable a customer is over the course of their relationship with a business. The two primary variables used in calculating customer lifetime value are cost of acquisition (marketing spend) and revenue, although some organizations may include additional factors. The CLV calculation may be historic in nature, but it's best if it projects into the future, as the relationship with the customer may still be ongoing. However, predicting the future is difficult, of course, so the formula used to calculate customer lifetime value will need to be more sophisticated.

Organizations use customer lifetime value to understand if the cost of acquiring customers is worth it in terms of expected revenue. Thus, CLV is used as an input to decisions about marketing expenditures. Customer lifetime value can also be used to segment customers. Some customers are more profitable than others, so businesses may study the characteristics of the ones with highest CLVs and try to acquire more of those types of customers. Or they might use the information to provide higher touch service to the most profitable segments.

How contact centers can impact customer lifetime value (CLV)

When there's higher churn with customers, customer lifetime value (CLV) decreases. This makes intuitive sense - when a relationship with a customer is cut short, so is the cumulative amount they spend on a company's products and services. Contact centers can positively impact churn rate by satisfying customers, since CSAT is related to loyalty. Additionally, when customers spend more with a company, it increases customer lifetime value. Therefore, agents who are in a position to cross-sell or upsell can increase CLV by stepping up their selling efforts.