What does customer lifetime value (CLV) refer to?

Customer lifetime value (CLV) refers specifically to the total amount a customer is expected to spend on a business's products or services throughout their entire relationship with that business. This metric is crucial for businesses as it helps them understand the long-term value that a customer brings, guiding them in making decisions regarding marketing, customer service, and resource allocation.

A thorough understanding of CLV allows businesses to assess how much they can invest in acquiring new customers and retaining existing ones, ensuring that they operate sustainably and profitably over time. In this context, CLV can provide insight into customer engagement and loyalty, which are essential for long-term business success.

The other choices, while related to business metrics, do not encapsulate the holistic view of a customer's financial contribution to a business over time. The maximum discount a customer can receive focuses on pricing strategies rather than overall value. The average cost of acquiring a customer addresses marketing investments without considering the total revenue generated by the customer. Potential revenue from new customers only looks at future income, ignoring the established relationships with existing customers and their contributions to overall business health.