Glossary
What is customer lifetime value?
Customer lifetime value is the total margin a customer produces over the whole relationship rather than on one visit. It is the number that justifies giving away a free coffee: the reward is priced against the relationship, not against the transaction.
Also called: CLV, LTV.
The concept that makes loyalty economics make sense.
A rough version is enough
Average transaction value, times gross margin, times visits per year, times how many years a customer typically stays. It will be wrong in the third decimal place and right about the order of magnitude, which is all you need.
What it changes
Say a regular is worth a few hundred dollars a year to you. Against that, the cost of one free coffee stops looking like a giveaway. It starts looking like a very cheap way to keep them.