Chapter 34 Customer Equity and Customer Lifetime Value
Measurement Need
Marketing needs to know how much their customers are worth to their business.
Solution
Measuring customer equity, which is the sum of the present values of the company’s future customer cash flows, is an invaluable marketing tool. Two methods are described here, measuring different (but related) factors in customer equity and customer lifetime value (CLTV). Given that loyal customers have already “voted” by purchasing a company’s products, the marketing opportunity lies in increasing cross-selling (selling similarly priced complements) and up-selling (selling a more expensive solution or complement).i
The following formula assumes a constant customer defection rate, a ...
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