Customer lifetime value (CLV), lifetime customer value (LCV), or lifetime value (LTV) is a metric that projects the value of a customer over the entire history of that customer's relationship with a company. Use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales. 

The specific calculation depends on the nature of the customer relationship. For example, companies with a monthly billing cycle, such as mobile phone operators, can count on a reasonably reliable stream of recurring revenue from each customer. Car manufacturers, on the other hand, have less insight into when or whether a customer will make a repeat purchase. Nevertheless, certain data inputs are commonly used when making customer lifetime value calculations:  

Acquisition cost The amount of money a marketing department has to spend, on average, to acquire a single new customer.  

Churn rate The percentage of customers who end their relationship with a company in a given time period. Churn rate typically applies to subscription services, such as long-distance phone service or magazines.  

Discount rate The cost of capital used to discount future revenue from a customer. Discounting is an advanced topic that is frequently ignored in customer lifetime value calculations. The current interest rate is sometimes used as a simple (but incorrect) proxy for discount rate.  

Retention cost The amount of money a company has to spend in a given time period to retain an existing customer. Retention costs include customer support, billing, promotional incentives, etc.  

Time period The unit of time into which a customer relationship is divided for analysis. A year is the most commonly used time period. Customer lifetime value is a multiperiod calculation, usually stretching 3-7 years into the future. In practice, analysis beyond this point is viewed as too speculative to be reliable.  

Periodic Revenue The amount of revenue collected from a customer in the time period.  

Profit Margin Profit as a percentage of revenue. Depending on circumstances this may be reflected as a percentage of gross or net profit. For incremental marketing that does not incur any incremental overhead that would be allocated against profit, gross profit margins are acceptable.

Contribution: Ashish Chandrashekhar