What is CLV and how does it relate to customer segmentation?

What is CLV and how does it relate to customer segmentation?

CLV, or Customer Lifetime Value, is a prediction of the net profit attributed to the entire future relationship with a customer. It helps businesses understand how valuable a customer is over time, which is crucial for effective customer segmentation.

Why is understanding CLV important for businesses?

Understanding CLV allows businesses to allocate resources more effectively, tailor marketing strategies, and improve customer retention by focusing on high-value segments.

Can you give me an example of how to calculate CLV?

Sure! A simple formula is: CLV = (Average Purchase Value) x (Average Purchase Frequency) x (Customer Lifespan). This gives you an estimate of the total revenue a customer will generate.

How can I use CLV for customer segmentation?

You can segment customers based on their CLV to identify high-value customers, allowing you to tailor marketing efforts and improve customer experiences for different segments.