Lifetime Customer Value

The value to your business of a customer over the life of your relationship. Important note: lifetime customer value is measured in contribution to profit, NOT revenue.

Example: How to Calculate Lifetime Customer Value

You are a online book retailer, like A customer buys ten books from you over the life of your relationship. The average sale price of a book is $15, and the average cost of a book (the price that you have to pay to get the book from the distributor) is $10. Then the contribution to profit of each book is $15-$10=$5. As you sell 10 books over the lifetime of your relationship with the customer, their lifetime customer value to you is $5/book * 10 books = $50.

Lifetime customer value is an important concept in marketing, because lifetime customer value needs to be greater than the customer acquisition cost for a customer to be profitable. In the example above, if you had spent $60 in marketing costs to get that customer, you would lose money on that customer over the life of your relationship.

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