CUSTOMER LIFETIME

VALUE
CUSTOMER LIFETIME VALUE

  Customer Lifetime Value (CLV) a marketing metric that projects the value of
a customer over the entire history of that customer's relationship with a
company. It is the current value of the likely future income flow generated by
an individual purchaser.
 It seeks to maximize profit by analyzing customer behavior and business
cycles to identify and target customers with the greatest potential net value
over time.
 A Profitable customer is one that overtime yields a revenue system that
exceeds by an acceptable amount of the company's cost stream of attracting,
selling and servicing that customer over time.
SEGMENTING CUSTOMERS

  Today, companies around the world are increasingly segmenting their

customers in order to increase profitability. Segmenting helps companies to
tailor their offerings to each of the segment. One of the common ways of
segmentation is based on loyalty & profitability After segmenting customers,
companies tailor their offerings, marketing strategies to convert existing
customers to become more loyal and more profitable. Segmenting helps
companies to allocate their marketing resources based on the customer value.
Customer lifetime value give a formalised depiction of a long-term view of the
customers and gives a better picture of what the company is going after.
IMPORTANCE OF UNDERSTANDING
CUSTOMER LIFETIME VALUE
  "Customer lifetime value is not just a number; it is a way of thinking and doing
business"
 Knowing and fully understanding the customer lifetime value changes the
business perspective to a great extent. To begin with, company can use it to
estimate the current value of all its customers. By knowing the current value of the
customer, you can then segment customers into different categories.
 Segmenting helps to concentrate more on the profitable customers. For instance,
discount brokerage company Charles Schwab answers its best customer's phone
calls within 15 seconds while other customers have to wait for as long as 10
minutes to have their calls answered. Once customers are segmented based on
profitability, you can tailor your offerings to various segments.
CALCULATING YOUR CUSTOMER
LIFETIME VALUE

 To calculate CLV, you need to know three things, First, the estimated annual
profits from that customer. Second, the duration of the business relationship
with that customer. Third, the current discount rate. If you do not have the
actual figures, then you will have to estimate. As the Customer Lifetime Value
will have a significant impact on your bottom line, my advice is that you be
prudent and conservative in your estimation.
CALCULATING YOUR CUSTOMER
LIFETIME VALUE

 Let's say you have a customer who generates Rs3000 profit every year for next
10 years . If the current discount rate is 8%, then the customer life time value
will be: CLV = i=10 Si 3000/1.08 i = 20,130.25 CLV = 3000/1.08 + 3000/1.08
2 + 3000/1.08 3 + 3000/1.08 4 + 3000/1.08 2 .... 3000/1.08 10
 This means that the customer is worth Rs 20,130 to you today.