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Customer Lifetime Value Analysis

Customer lifetime value analysis allows companies to predict how profitable individual customers will be over time. It helps determine appropriate marketing budgets to acquire and retain customers. Netflix calculates the average lifetime value of a subscriber is $291.25 over 25 months. This helps Netflix decide how much to spend acquiring customers, as it will recoup costs over the customer's lifetime even if not immediately. Netflix optimizes lifetime value by tracking individual customer behavior and preferences to continually engage customers and reduce cancellation rates.

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Namrata Parvani
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257 views

Customer Lifetime Value Analysis

Customer lifetime value analysis allows companies to predict how profitable individual customers will be over time. It helps determine appropriate marketing budgets to acquire and retain customers. Netflix calculates the average lifetime value of a subscriber is $291.25 over 25 months. This helps Netflix decide how much to spend acquiring customers, as it will recoup costs over the customer's lifetime even if not immediately. Netflix optimizes lifetime value by tracking individual customer behavior and preferences to continually engage customers and reduce cancellation rates.

Uploaded by

Namrata Parvani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CUSTOMER

LIFETIME
VALUE
ANALYSIS
MADE BY – NAMRATA PARVANI 027
NISHKA 047
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WHAT IS
CUSTOMER
LIFETIME
VALUE
ANALYSIS ?
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 Customer Lifetime Value is a prediction of how


valuable a customer is going to be to your
business over a specific period of time.
 Calculating Customer Lifetime Value allows an
individual to determine what each of his/her
acquired customers are worth to his/her
company store in the long run.
 It also creates an awareness of how much an
individual should be spending on his/her
marketing efforts, such as acquisition,
retention and promotions/ discounts.
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• Aman
• B.Tech
student
• Orders an 6
American
Cappuccino
every day
except for
weekends.
Illustration:

Computation of CUSTOMER
LIFETIME VALUE:
○ Customer Lifetime Value= (Annual profit
contribution per customer*Average number of years
that they remain a customer) - Initial cost of
customer acquisition
○ Profit generated by Aman each year = ₹25,000
approx. {= ₹116* 215(365-(61+80))}
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○ Assumptions
○ Number of years Aman is
a customer of the cafe= 4 • Price of an American
You can also split Cappuccino -
years
your content ₹116
○ Cost to acquire the Aman • Aman gets 61 days
= ₹ 2,000 summer holiday
○ CLV= (₹25,000* 4years)- • And he doesn’t order on
₹2,000 weekends. (8*10=80)
○ = ₹(1,00,000 - 2,000)
○ = ₹98,000.
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Are you a Netflix subscriber?
○ Well if you are, I bet I can guess how long you’ve
How Netflix
been a customer alright, I know there is no way I
Measures You to
can guess how long you’ve been a subscriber, but
Maximize Their the odds are you’ll only stay on for 25 months.
Revenue How do I know that? Based on their lifetime value
metric, an average Netflix subscriber stays on
board for 25 months. And according to them, the
lifetime value of a Netflix customer is $291.25.
○ The reason that number is important is because it
helps Netflix determine how much they can spend
on a customer from overhead to marketing.
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The Importance Of Lifetime Value
○ If you signed up for Netflix right now, on average you
would have to pay $11.65 a month. Over a course of
12 months, you would have spent $139.80.
○ If you were Netflix, would you be willing to spend
$150 on a customer? Assuming that your overhead
isn’t too high, paying $150 per customer can actually
be very profitable.
○ As I mentioned earlier, the lifetime value of you, as a
paying customer, is almost $300. They just don’t get all
of the revenue upfront. They get it over a course of 25
months.
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○ Let me explain… at $139.80 in revenue during year
1, Netflix would be losing money. Assuming they
paid $150 to get you, they would actually lose
$20.2. But because on average a customer stays
for 25 months, they still could make money off of
you… just not in the short run.
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○ Maximizing Lifetime Value
○ Every customer isn’t equal. And in the case of Netflix, this is
especially true. Why, you ask? Well some customers won’t stay
on board for even a month while others may stay on for 5 years
or never even cancel…
○ There are a lot of reasons that each customer is different… and
why some may stay on longer than others. And of course, as a
business, Netflix ideally wants every customer to stay as long
as possible.
○ By tracking each and every customer individually, Netflix can
optimize their lifetime value. For example, they know that if you
don’t continually rent movies, you’ll cancel sooner or later.
Because of this they added features like a queue where you
can create a list of all the movies you want to watch .
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○ So after you are done watching a movie, they keep on
sending you more discs because you’ve told them what you
want to watch. This is much more efficient then having you
login every time after you finish watching one movie and
asking Netflix to send you another.
○ To go one step further they know that customers are
impatient and some customers cancel because they don’t
like waiting for movies to arrive in the mail. Due to this
they’ve added a feature where you can stream movies on
the web, which not only satisfies your movie urge, but it
keeps you busy while you are waiting.
○ By tracking these stats and behavior, Netflix has reduced
their churn to 4%.
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