what is the lifetime value of customers, and how can marketers maximize it ?
Post on 16-Aug-2015
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Interesting numbers:
80 Cr. would be top 20 profitable customers
They may contribute to up 300 Cr
But the least 10 profitable customers causes up to
100 Cr loss.
The implication being company could profit “firing” least profitable customers.
Out of 100 customers.,If company makes a profit of 100 Cr
C1 C2 C3
P1 + + + High profitable product
P2 + Profitable product
P3 - -Unprofitable
product
P4 -Highly
unprofitable product
High profit customer
Mixed-bag Customer
Losing Customer
P – Product C-Customer
Customer Profit Analysis (CPA) is best conducted with activity-based costing (ABC) With ABC, the costs includes
not only the making and
delivering costs, but all the
company’s resources that go
into serving the customer
Both variable and overhead
costs are back
to the customer
Companies not measuring their profit
right are likely to misallocate resources
Long-term customer profitability is captured in
Customer Lifetime Value (CLV)CLV helps formulate framework
for planning investments and adopt long-term perspectives
Long-term customer profitability is captured in
Customer Lifetime Value (CLV)CLV helps formulate framework
for planning investments and adopt long-term perspectives
𝐶𝐿𝑉 =
𝑡=0
𝑇𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇)
(1 + 𝑖)𝑡− AC
p (t) -- price paid at time t by customer
c (t) -- cost of servicing the customer
r ( t) -- probability that customer still buys the
product AC -- acquisition cost
T -- time horizon for the estimate
i -- discount rate
-
Long-term customer profitability is captured in
Customer Lifetime Value (CLV)CLV helps formulate framework
for planning investments and adopt long-term perspectives
𝐶𝐿𝑉 =
𝑡=0
𝑇𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇)
(1 + 𝑖)𝑡− AC
p (t) -- price paid at time t by customer
c (t) -- cost of servicing the customer
r ( t) -- probability that customer still buys the
product AC -- acquisition cost
T -- time horizon for the estimate
i -- discount rate
-
Long-term customer profitability is captured in
Customer Lifetime Value (CLV)CLV helps formulate framework
for planning investments and adopt long-term perspectives
𝐶𝐿𝑉 =
𝑡=0
𝑇𝑝 𝑡 − 𝑐 𝑡 ∗ 𝑟(𝑇)
(1 + 𝑖)𝑡− AC
p (t) -- price paid at time t by customer
c (t) -- cost of servicing the customer
r ( t) -- probability that customer still buys the
product AC -- acquisition cost
T -- time horizon for the estimate
i -- discount rate
-
The key decision is the time frame for estimating CLV Typically, 3-5 years.
Special thanks
• https://www.flickr.com/photos/kimberlynmerrill/• https://www.flickr.com/photos/griddlecakes/
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