Which of the following best defines customer lifetime value (LTV)?

• A. Total Revenue from a Customer in Their First Year.
• B. Net Profit Attributed to a Customer Over Time.
• C. Gross Margin Generated by Marketing Campaigns.
• D. Net Income of the Company.

Answer: (B)

LTV focuses on the profitability you can expect from a single customer over the entire time they stay with your business. The best definition is the net profit attributed to a customer over time, accounting for revenues and the costs tied to serving and acquiring that customer. This matters because it captures the long-term value of a relationship, not just what happens in one year or the efficiency of a marketing campaign. It’s also distinct from the company’s overall net income, which reflects the entire business, not the value that one customer contributes over their lifetime. In practice, you compare LTV to what you spend to acquire and retain that customer to ensure you’re investing wisely.