J C BOSE UNIVERSITY OF SCIENCE AND

TECHNOLOGY, YMCA

ASSIGNEMENT

CUSTOMER RELATIONSHIP MANAGEMENT

NAME - SANJNA BHARDWAJ

CLASS - MBA A

ROLL NO. - 20001701051

Customer lifetime value (CLV, or CLTV) is the metric that indicates the total revenue a
business can reasonably expect from a single customer account throughout the business
relationship.

The metric considers a customer's revenue value and compares that number to the company's
predicted customer lifespan .

Businesses use customer lifetime value to identify customer segments that are most valuable to
the company. The longer a customer continues to purchase from a company, the greater their
lifetime value becomes.

This metric is something that customer support and success teams can directly influence during
the customer's journey. Customer support reps and customer success managers play critical roles
in solving problems and offering recommendations that increase customer loyalty and reduce
churn.

Why is Customer Lifetime Value Important?

Here are some reasons why understanding your CLV is essential:
1. It directly affects revenue.

The CLV identifies the specific customers that contribute the most revenue to the
business. This allows to serve these existing customers with products/services they
like and make them happier, resulting in them spending more money at the company.

If we look at companies with stagnant or decreasing revenue, only 29% said this
investment was "very important." Companies that are actively geared
towards customer's success are experiencing more revenue because of increased
customer satisfaction.
2. It boosts customer loyalty and retention.

When a company optimizes its CLV and consistently provides value — in the form of
excellent customer support, products, or a loyalty program — it tends to increase
customer loyalty and retention.

And with more loyal customers comes a lower churn rate, as well as an increase in
referrals, positive reviews, and sales.
3. It helps to target the ideal customers.

When we know the lifetime value of a customer, we also know how much money they
spend with our business over a period of time — whether it's $50, $500, or $5000.
Armed with that knowledge, we can develop a customer acquisition strategy that
targets customers who will spend the most at our business.
4. It reduces customer acquisition costs.
Acquiring a new customer can be a costly affair. In fact, an article published
by Harvard Business Review found that gaining a customer can cost anywhere
between five and 25 times more than retaining an existing one.
Additionally, another study conducted by Bain & Company found that a 5% increase
in retention rate can lead to a rise in profit between 25% to 95%.

These stats show it’s essential that business identifies and nurtures the most valuable
customers that interact with company. By doing so, we'll have higher profit margins,
increased customer lifetime values, and reduced customer acquisition costs.

How customer lifetime value is calculated?

 Average purchase value – It is calculated by dividing the company’s total revenue over a
period of time by the total purchases made by its customers during that same timeframe.
 Average purchase frequency rate – It is calculated by the total purchases made over a
period of time by the individual customers that made those purchases during that time.
 Customer value – It is calculated by multiplying the average value of the purchase by the
number of times the purchase is made.
 Average customer lifespan – It is the average number of years that a customer continues
to buy the company’s goods and services.
 Lifetime value calculation – The LTV is calculated by multiplying the value of the
customer to the business by their average lifespan. It helps a company identify how much
revenue they can expect to earn from a customer over the life of their relationship with the
company.

OR

 First, calculate the lifetime value by multiplying the average value of a sale, the average number
of transactions, and the average customer retention period

Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time

Period
Since the lifetime value of a customer is calculated in gross revenue terms, it does not take
operating expenses into consideration. How much did it cost to make the product, advertise, and
manage operations? Take these operating expenses into account when calculating customer
lifetime value.
Customer Lifetime Value = Average Value of Sale × Number of Transactions × Retention
Time Period × Profit Margin
Or simply:
Customer Lifetime Value = Lifetime Value × Profit Margin