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Customer Lifetime Value (CLV)

The document discusses customer lifetime value (CLV), which is a prediction of the net profit from a customer over the entire lifetime of their relationship with a company. It is calculated based on acquisition costs, discount rate, net present value of profits each year, and cumulative net present value profits over time. Managing CLV allows companies to distinguish profitable vs unprofitable customers and make decisions about acquisition and retention efforts.

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Bhaskar Saha
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141 views

Customer Lifetime Value (CLV)

The document discusses customer lifetime value (CLV), which is a prediction of the net profit from a customer over the entire lifetime of their relationship with a company. It is calculated based on acquisition costs, discount rate, net present value of profits each year, and cumulative net present value profits over time. Managing CLV allows companies to distinguish profitable vs unprofitable customers and make decisions about acquisition and retention efforts.

Uploaded by

Bhaskar Saha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Customer Lifetime Value (CLV)

• Management wants to know the financial worth of


this relationship to the organization so that the
decisions regarding the level of efforts to acquire and
retain the customers can be made.

• The ways to manage the relationship with the


customers and at the same time distinguish between
a profitable customer and a loss making customer.

• The replacement of transaction marketing by


relationship marketing has led the manager to find out
the new way of finding the economic value of the
customer considering both the relationship benefits
and accounting profit from the customer.

12-1
Customer Lifetime Value

– In marketing, customer lifetime value (CLV) (or


often CLTV), lifetime customer value (LCV),
or user lifetime value(LTV) is a prediction of
the net profit attributed to the entire future
relationship with a customer.

– Customer lifetime value (CLV):The present


value of the future cash flows attributed to the
customer during his/her entire relationship with
the company.

12-2
Calculating CLV
The CLTV of a customer is calculated based on the
following inputs:

• The cost of acquiring the customer


• The Discounting Rate
• NPV Profit
• Cummulative NPV Profit LTV

12-3
Acquisition Cost

• Marketing + Sales
– Money you spend during the year.

• Than
– Marketing + Sales/the number of new customers who
actually make purchases from you each year.

12-4
How to figure the Discount Rate
• Years = n Interest = i
• Formula: D = (1 + i)n

12-5
Profits

• NPV Profits : Gross Profits / Discount rate

• Cumulative NPV profits


NPV year 1 + NPV year 2 + NPV year 3

12-6
LTV
• LTV :

Cumulative NPV profits in each year / original group of customers

12-7

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