Customers and pricing
CLV (customer lifetime value)
The profit a customer is expected to bring over the whole relationship.
Last reviewedWhat 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
- E-commerce players, trends, and how to crack the casesLesson in E-commerce, marketplaces, and quick commerce
- Subscriber and content economicsLesson in Media, streaming, gaming, and advertising
- School and edtech unit economicsLesson in Education and edtech
- Unit economics and subscription businessesLesson
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.