customer lifetime value

Customer lifetime value (CLV) represents a capital value method for the medium-to-long-term economic evaluation of investments in business relationships.

In contrast to classical capital value methods, the CLV is not applied to classical investment objects such as assets or buildings, but to business relationships with customers (and/or customer segments). When calculating the CLV, the expected expenses for maintaining the business relationship are deducted periodically from the expected income from the business relationship. The CLV provides important information for the sales department regarding initiation, management and control of business relationships. The calculation of the Customer Lifetime Value is particularly helpful

• for the evaluation of key accounts regarding the development of long-term business relationships,
• for the argumentation in negotiations with customers,
• for the profitability analysis of projects and plans such as customer processing strategies, and
• for the review of the economic efficiency of future cooperation.

A negative CLV does not automatically lead to the termination of a business relationship. Rather, it must be examined whether­ turnover increases and/or­ cost reductions can lead to a satisfactory valuation of the business relationship. Even if this is not the case, there may be strategic reasons to continue the business relationship.