Why Is Customer Lifetime Value Important?

Feb 5, 2024 | business advice, Business growth, Business performance, business success

Why is Customer Lifetime Value Important?


Among the many factors that contribute to successful management are customer lifetime value (CLV) and segmenting your customers. CLV is a measure of how much profit a company can expect to make from each customer over the course of their relationship with that company. But, why is customer lifetime value important? 

In this blog, I’m going to dive deeper into the importance of CLV and go over the main points that you, as a business owner, need to focus on. 

Why is customer lifetime value important? 

Long-lasting and satisfied clients are equal to a prosperous business. Knowing your customer’s CLV can assist you in making better decisions when it comes to the products and services that you offer, the marketing campaigns you run as well as the funds you invest in acquiring new customers. Therefore, it simultaneously lowers the stress and anxiety of running a business while providing you with the clarity needed for further growth and improvement. 

Customer segmentation

Each individual has their own characteristic, which is what makes us unique. Therefore, each client you have is a separate entity and should not be mixed together with every other client. What I want to emphasise here is that when looking at your clients, you shouldn’t look at them as one big group of people. Rather, see them as a mixture of numerous smaller groups. 

For this reason, when calculating customer lifetime value, you need to divide your clients into groups. This is what I like to call customer segmentation. It can help you separate your customers based on different aspects, such as:

  • demographic,
  • geographic,
  • behavioural, or
  • value-based characteristics.

It will give you insight into the type of clients your business attracts, and who you are dealing with. This way, you can decide what should be done in the future regarding your existing as well as new customers. For example, you might want to focus more on the customers that have shown higher value and contributed to the profitability of your business. But you also have to check what seems to be the matter with the more challenging clients and how you can improve the situation there. 

Customer retention

Did you know that investing in existing customers can be significantly cheaper than investing in new ones? Well, it costs six to seven times more to attract a new customer than it does to keep an existing one. So, retention is just one reason why customer lifetime value is important. You might be wondering how this can be true, so hear me out. It doesn’t take much to improve your services and your customer support. However, it will surely mean a lot to your customers. Keeping your clients satisfied will be of great benefit to the profitability of your business. This, of course, doesn’t mean you should forget about acquiring new customers. Balance the two aspects accordingly for the perfect outcome. 

The way to insightful CLV

In order to calculate customer lifetime value, there are several aspects that can help you create an insightful database. If you are new to this, the process might seem a bit complex. But actually, what you need to do is just direct your focus towards data-gathering. 

The first key element is KYC, also known as know your customer. This refers to all the necessary and important information that you need to know about your customers, from the onboarding early days until the day they leave. Next are the systems and database. Make sure that you have functional and effective systems that will ease your communication with your customers. And that will store the data i.e the details that you have gathered from your customers. Lastly, a very important element here, is ownership. Own your ideas, believe in yourself, and believe in your partners and staff. Whether everyday activities are in question, or more serious ones, like your business affairs, having a positive mindset is key. 


Using numbers in your business is a powerful management tool. Customer lifetime value is based on the numbers that arise from your customers. It gives you valuable information on whether or not to change your current strategies in order to make sure your customers are satisfied and will stick with you. Therefore, by working on improving CLV, you’re not only increasing profits today, but you’re also laying the groundwork for future success. 

To answer the question, why is customer lifetime value important in the end? It releases the power to grow your business by tracking customer behaviour, identifying key segments, and allocating resources accordingly. 

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