Lifetime value or LTV in short, is the contribution to overhead and profit made by a customer during his or her total relationship with the company. Lifetime value is refered to customer lifetime value or user lifetime value. It tries to predict the profit of a future relationship with a customer. There can be various levels of the prediction and accuracy. It ranges from simple questioning to the use of complicated predictive analytics techniques. Lifetime value can be defined as the dollar value of a client relationship. It is based on the present belief of the future income from the customer relationship.Lifetime value is very important in business because it enables companies to set up a limit on spending money to get some new clients.
The purpose of measuring customer lifetime value is to evaluate the financial value of every customer in order to improve the business. Lifetime value is different than customer profitability. Customer profitability is focused on the present and the past. Lifetime customer value is more focused on the future. Customer profitability measures the past value of the customer, while lifetime value tries to predict future activity, and that is the main difference between these two terms.