How Should You Calculate Customer Lifetime Value?
Should marketers subtract the cost of acquiring a customer before assessing that customer’s lifetime value?
Customer lifetime value (CLV), which is the present value of cash flows from a customer relationship, can help managers make decisions regarding investments in customer relationships.1 For example, a marketer might use CLV to decide whether to spend marketing dollars to acquire new customers or to increase the retention rate of existing customers. CLV can be difficult to calculate because it often relies on the ability to predict future customer retention rates.2 However, we think one major source of confusion among marketers — whether to ...
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