An important metric that plays a pivotal role in marketing is customer lifetime value (CLV). Given the constraint of limited marketing budgets, a company can enhance the return on its marketing investment by strategizing to allocate marketing resources based on the anticipated value of different customer segments. This technical note provides a contemporary explanation for what CLV is, focusing on its conceptual underpinnings and why it matters for marketers. In the digital age, the analysis of CLV has experienced a profound transformation driven by the wealth of available customer data and the emergence of advanced analytics tools, and it continues to evolve. This technical note provides an accessible, intuitive introduction to CLV as applicable in a wide range of scenarios.

We recommend pairing this with another note that provides examples of empirical applications of CLV: “Three Empirical Methods for Calculating Customer Lifetime Value” (UVA-M-1056).