Customer Analytics For Dummies

Chapter 6

Determining Customer Lifetime Value

In This Chapter

Learning the importance of customer lifetime value (CLV)

Determining the CLV

Applying CLV to the profitability of your business

If you’ve ever signed up for a credit card that had a low introductory interest rate, or enjoyed a low cable subscription in the first year of signing up, then you’ve experienced marketing strategies informed by a company’s analysis of customer lifetime value (CLV).

The CLV is the total profit that an individual customer generates for your business over his or her lifetime. The customer lifetime is the time period that starts when a customer first uses your business (in person or online) and ends when he buys his last service or product from you. The CLV covers the entire relationship you have with that specific customer, or segment of customers.

In Chapter 4, I discuss the importance of segmenting customers. One of the primary reasons for segmenting customers is that not all customers generate the same revenue or profits for an organization. Certain segments are more profitable than others. Now, the next step is to understand how segments of customers differ in the duration of their relationship ...