What does customer lifetime value (CLV) represent?

Customer lifetime value (CLV) represents the total revenue expected from a customer over the entire duration of their relationship with a business. This metric is crucial for businesses as it helps them understand the long-term value that each customer brings, allowing for more effective marketing strategies and resource allocation. By calculating CLV, businesses can identify how much they should invest in acquiring and retaining customers, optimizing their return on investment.

In contrast, the other options pertain to narrower aspects of customer interactions or financial assessments. The average revenue per transaction focuses on single purchases rather than the cumulative value over time. Revenue generated by marketing campaigns isolates the impact of specific marketing efforts without accounting for the broader customer relationship. Lastly, the cost associated with acquiring a new customer addresses the initial investment required to bring in business, which is distinct from measuring the overall value that customer contributes throughout their engagement with the brand. Thus, understanding CLV is vital for developing sustainable customer-centric strategies.