Which statement correctly defines CLV and its drivers?

• A. CLV is the net present value of a customer's future profits, driven by margin per period and customer lifespan/retention
• B. CLV is the current year's gross margin from a customer
• C. CLV is the cost of acquiring a customer
• D. CLV is the total marketing spend per period

Answer: (A)

CLV, or customer lifetime value, is the net present value of the profits you expect to earn from a customer over the entire relationship. The key drivers are the profit margin you earn per period and how long you retain the customer (the lifespan). The longer the relationship and the higher the margin, the greater the CLV, especially once you account for the time value of money by discounting future profits. This concept is distinct from a single year's gross margin, the cost of acquiring a customer (CAC), or the total marketing spend per period, all of which are different measures—one-year performance, acquisition cost, and expenditures, respectively.