CLV is short for Customer Lifetime Value; an estimate of the projected total value of a customer to your business. To be as accurate as possible, we use a proprietary algorithm to derive the present value of a customer using actual historic values and predictive modeling. This is far more accurate than most calculations that merely account for averages against churn.
Why is this so important?
Understanding CLV will help you determine how much you can spend to acquire a customer, how much support you can/should offer that customer, and ultimately how sustainable your business model is over time.
Here are two examples:
Your SaaS business has an ARPU (Average Revenue Per User) of $125, and churn is 3%, your CLV is $4,166. Your cost per acquisition will basically tell you if this is a great customer or not. If you acquired the customer for less than $1,000, this should be a profitable customer. Go get more of them right now.
Your SaaS business has an ARPU of $650, and churn is 16%, your CLV is $4,062.50. Compared to the above example, the CLV is pretty close even though the ARPU is much higher. However, you can see how high churn can really hurt the overall value a business obtains from its customers.