Customer Lifetime Value (CLV)

Think of customer lifetime value (CLV) like a video game where you invest to get better. Each gamer that you “buy” has a certain value, which depends on how long and how intensively they play. In the corporate world, these gamers are the customers.

Imagine you own a company that sells cool sneakers. The CLV is then like a high score, which shows how much money a customer brings you over the course of their life. It's about finding out how much profit a customer can generate after you've deducted the costs you've spent to get them as a customer first — that's customer acquisition costs (CAC). These costs could be advertising, discounts, or other promotions you're doing to attract new customers.

So if you have a customer who regularly buys new sneakers every few months over many years, that customer has a high CLV. That's great because it means he'll make you a lot more money than it cost you to win him. Companies always try to keep CLV high and CAC low because that is the key to success. Think of it like your own player level: You want to maximize your score by playing smartly and using your resources wisely.

Another public example of this is Starbucks. The chain has discovered that its own CLV is $14,099.

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