Customer Lifetime Value. The monetary value of a customer’s past, present and future purchases over the course of your relationship with them.
Most customers buy in part based on the trust they place in their relationships as they develop. That means they will likely buy from you more than once, usually on higher value items when monetized properly.
It is therefore important to assess their true value over all their purchases rather than just the initial one.
This helps you determine n reverse, how much you can afford to invest in advertising to create the relationship, when measured against your budgets.
In other words, if you spend $50 in advertising to attract a customer who buys something for $47 dollars, what may seem like a loss may actually return a very good profit if the CLTV of their purchases is $470. It is therefore important to determine your cash position to absorb the initial loss by tracking how quickly the CLTV is realized, i.e., how quickly they repurchase.