Customer Lifetime Value Prediction (LTV)


Customer lifetime value is the total value of the customers profit to the company over the entire “lifetime” (usually 12-24 months). Essentially, it is the amount of money that they will spend on your products and services after the expenses of acquiring them as a customer. There are numerous types of CLV. The two most popular forms of CLV calculations are historic and predictive.
All the forecasts are made on the past data leading up to the most recent transactions. Predictive CLV uses previous transactions, mixed with a variety of behavioral indicators that forecast a lifetime value for an individual customer. With each new purchase and new behavioral data, the Predictive CLV will change and become more accurate over time.

Benefits for the company

E-commerce businesses can benefit from knowing what net profit a customer is likely to bring to the company. Being able to predict the lifetime value of a customer can help with factors such as defining objectives for expenditure, optimizing marketing strategies and deciding cross sell and up sell according to customer purchases.
Knowing the CLV of a customer will help businesses to strike the ideal balance between customer retention and acquisition. Knowing at what point a customer becomes profitable, is an essential part of knowing how much budget you can allocate to a particular channel or market.



Type of expertise/ AI domain

Machine Learning
& Statistics

Internal data required

Customer Purchase and Customer History

Research Paper

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