Customer lifetime value
Customer lifetime value is the total profit you expect from one customer over the whole time they stay with you, rather than from a single purchase. It matters because it tells you what a new customer is genuinely worth, which is the number that decides how much you can afford to spend to get one.
A workable way to estimate it
Take the average value of a purchase, multiply by how many times a typical customer buys in a year, then by how many years they usually stay, and subtract the direct cost of serving them. The result is an estimate, and treating it as one is the point: a rough figure you revisit beats a precise figure calculated once and quoted for three years.
What it changes
Businesses that only look at the first sale conclude that acquiring customers is too expensive, and stop. Knowing the lifetime figure often reverses that conclusion — and, just as usefully, it makes keeping existing customers look as valuable as it actually is, which is where most small businesses have the easiest gains.