Information Technology Applications 203C (ITA203C) FE Practice Test

The metric that reflects the relationship between the revenue generated from a specific customer and the costs incurred in servicing that customer is Customer Lifetime Value (CLTV). CLTV estimates the total revenue that a business can expect from a single customer account throughout the entire duration of their relationship. This includes all purchases made by the customer and takes into account the costs associated with acquiring and serving that customer.

By calculating CLTV, businesses can better understand not only the profitability of individual customers but also how much they should be willing to invest in acquiring new customers and retaining existing ones. It helps in strategic decision-making regarding marketing spend and customer service resources, ensuring that the lifetime value justifies the costs incurred in building and maintaining customer relationships.

Churn rate focuses on the percentage of customers that stop using a service or product over a specific period, while cost per lead and cost per sale are metrics that pertain to marketing and sales efficiency and do not address the relationship between revenue and servicing costs in the same comprehensive way that CLTV does.