Customers and pricing
CLV (customer lifetime value)
The profit a customer is expected to bring over the whole relationship.
Facts checked against sources onWhat does CLV (customer lifetime value) mean?
Customer lifetime value is the total profit (or gross margin) a customer is expected to bring over the time they stay, ideally discounted to today. A simple version: margin per year × expected years as a customer. With 5% of customers leaving each year, the average customer stays about 20 years (1 divided by 0.05). A business needs CLV well above CAC to grow profitably. Also written LTV.
Where does it come up in case interview prep?
- Unit economics in any businessLesson in How industries work: the toolkit
- Business models: who pays, and for whatLesson in How industries work: the toolkit
- Fixed and variable costs, operating leverage, and unit economicsLesson in Business basics for non-business learners
- Industry primers: airlines, pharma, software, energyLesson in Business basics for non-business learners
- Switching costs, lock-in and habitsLesson in Why some businesses win: competitive advantage and the economics of strategy
- Retention and cohorts: why keeping customers beats winning themLesson in Customers and growth: the economics of marketing
- Marketing return: CAC, payback, incrementality, and why last-click credit misleadsLesson in Customers and growth: the economics of marketing
- Founders and startup operatorsLesson in The same acumen in other roles
Related terms
- CAC (customer acquisition cost)What it costs, on average, to win one new customer.
- Churn and retentionThe share of customers who leave in a period, and the share who stay.
- Unit economicsThe revenue and cost of one unit: one product, order or customer.
- TAM, SAM and SOMTotal market, the part you can serve, and the part you can win.
- Market shareOur sales as a share of total market sales.
- Relative market shareOur share divided by the largest competitor's share.
- Penetration rateThe share of potential customers who already use the product.
- Share of walletOur share of what one customer spends in the category.
Learn it in context
See CLV (customer lifetime value) at work in a lesson from How industries work: the toolkit, with checks as you go.
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