DECA Sports and Entertainment Marketing Practice Exam

What does 'customer's lifetime value' refer to?

1. The total expenditure a customer has made

2. The profit expected from a customer's relationship with a business

3. The potential for a new customer

4. The average spend per transaction

The correct answer is: The profit expected from a customer's relationship with a business

The concept of 'customer's lifetime value' (CLV) is crucial in marketing and finance as it represents the total profit a business can expect from a single customer throughout the entire duration of their relationship. This metric goes beyond merely assessing a customer's immediate purchases; it incorporates future transactions and the overall profitability of maintaining that customer. By focusing on the expected profit from a customer's engagement, businesses can make more informed decisions about how much to invest in marketing, customer service, and retention strategies. Understanding CLV helps companies identify valuable customers and tailor their strategies to enhance satisfaction and loyalty, ultimately leading to sustained revenue. In contrast, while the total expenditure a customer has made and the average spend per transaction provide useful insights, they do not account for the future potential of those relationships in terms of profit. Similarly, while considering the potential for a new customer is important for growth strategies, it does not reflect the established value derived from existing customer relationships.