Customer Lifetime Value (CLV).

Many advertising decisions look only at the first job. But a fiduciary client who leaves their bookkeeping with the same firm for ten years is worth many times their first mandate; so is a restaurant guest who comes back once a month. CLV makes this value visible. A simple formula: average contribution margin per purchase times number of purchases per year times average length of the customer relationship in years.

CLV is directly linked to customer acquisition cost (CAC): what does it cost on average to win a new customer? If CLV is significantly higher than CAC, a company can invest more in advertising than the first job would justify. If it is lower, the company loses money with every new customer — however good the campaigns look.

In subscription businesses, such as software as a service, CLV is the central metric. There it is calculated from monthly revenue per customer and the cancellation rate (churn). Even small improvements in customer retention change CLV considerably, because they extend the average lifetime. That is why investing in service and existing customers often pays off more than additional advertising for new ones.

CLV is an estimate. It is based on assumptions about the future, and young companies often lack the data. A cautious approach means: calculate with contribution margin instead of revenue, assume a rather short lifetime and regularly compare the values with the real figures from the CRM.