Which metric is essential for evaluating customer retention?

Customer Lifetime Value (CLV) is essential for evaluating customer retention because it quantifies the total revenue that a business can expect from a customer over the entire duration of their relationship. By measuring CLV, organizations can assess how valuable their customers are throughout their engagement with the company, specifically in terms of repeat purchases and ongoing interactions.

Understanding CLV allows businesses to evaluate the effectiveness of their retention strategies and to identify the long-term benefits of keeping customers versus acquiring new ones. If CLV is high, it indicates successful customer retention efforts and suggests that customers are not only being retained but are also likely to make repeat purchases. This metric provides insight into customer loyalty and the overall health of a business's customer relationships.

In contrast, while metrics like Net Promoter Score (NPS), Customer Acquisition Cost (CAC), and Average Order Value (AOV) provide valuable insights into customer satisfaction, acquisition efficiency, and spending patterns respectively, they do not directly measure the value derived from the continuity of customer relationships as CLV does.