In marketing, what term describes the total value of a customer’s expected relationship with a business?

In marketing, customer lifetime value describes the total value of a customer’s expected relationship with a business.

The measure estimates the revenue or profit a customer may generate over the duration of the relationship. A simple model can multiply average purchase value, purchase frequency, and expected customer lifespan. More advanced models account for gross margin, retention probability, discount rates, refunds, and support or service costs.

Businesses use customer lifetime value to guide acquisition spending, retention programs, customer segmentation, and product decisions. Comparing it with customer acquisition cost can help indicate whether a marketing channel is economically attractive, although the measures must use compatible definitions and time periods.

Customer lifetime value is an estimate, not a guaranteed amount. It depends on assumptions about future behavior and can vary sharply between customers or segments. It should not be confused with average order value, which describes the typical size of one transaction, or customer acquisition cost, which measures the cost of winning a customer.