Which statement correctly describes customer lifetime value (CLV)?

Which statement correctly describes customer lifetime value (CLV)?

• A. The total net profit attributed to the entire future relationship with a customer.
• B. The value of a customer's first purchase.
• C. The total revenue from all customers in a year.
• D. The cost to retain a customer for a year.

Answer: (A)

CLV is about the profitability of a customer across the entire future relationship, not just a single moment in time. It sums the expected profits from all future purchases and interactions, often bringing future profits to present value by discounting, and it subtracts the costs to serve and retain the customer. This means CLV captures how valuable a customer will be over years of loyalty, including repeat purchases, cross-sells, and the ongoing cost to support them. So the statement that describes CLV as the total net profit attributed to the entire future relationship is the best fit because it directly ties value to long-term profitability, not just a single transaction, yearly revenue, or retention costs. The other ideas describe first-purchase value, annual revenue, or costs to retain, which are different concepts.

CLV is about the profitability of a customer across the entire future relationship, not just a single moment in time. It sums the expected profits from all future purchases and interactions, often bringing future profits to present value by discounting, and it subtracts the costs to serve and retain the customer. This means CLV captures how valuable a customer will be over years of loyalty, including repeat purchases, cross-sells, and the ongoing cost to support them.

So the statement that describes CLV as the total net profit attributed to the entire future relationship is the best fit because it directly ties value to long-term profitability, not just a single transaction, yearly revenue, or retention costs. The other ideas describe first-purchase value, annual revenue, or costs to retain, which are different concepts.