Customer Lifetime Value
Definition
Customer lifetime value, or CLV, is the total amount of revenue a customer is expected to generate for a business over the entire duration of the relationship.
What Customer Lifetime Value Means for Your Business
What it means
CLV takes the average ticket, multiplies it by the average number of annual visits, and extends the math over the expected years the customer stays. A $500 average ticket customer who returns 1.8 times per year for 6 years has a $5,400 CLV.
Why it matters
CLV reframes marketing math. A $250 cost to acquire looks expensive next to a $500 first job, but cheap next to a $5,400 lifetime. Understanding CLV is what separates shops that grow from shops that chase leads.
How contractors use it
Owners calculate CLV by customer segment, residential vs commercial, service vs replace, and build marketing budgets as a percentage of CLV rather than first-job revenue.
Real-World Example
A plumbing company calculated residential CLV at $4,200 and commercial CLV at $18,500. Allocating 12% of CLV to acquisition meant it could profitably spend $500 for a residential lead and $2,200 for a commercial lead.
Related Terms
Customer Retention
Customer retention is the percentage of customers who continue doing business with a company over a defined time period, usually measured annually.
Customer Churn
Customer churn is the percentage of customers who stop doing business with a company over a given period, usually measured annually.
Cost per Acquisition (CPA)
Cost per acquisition, or CPA, is the total marketing spend divided by the number of customers actually won, measuring what it costs to acquire one paying customer.
Average Ticket
Average ticket is the mean revenue generated per service call, calculated by dividing total invoiced revenue by the number of completed jobs.
Recurring Service Agreement
A recurring service agreement is a contract that auto-renews and bills a customer on a fixed schedule for ongoing maintenance or priority service.
Put This Into Practice with Free Software
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