10. Customer Lifetime Value
As Don Peppers and Martha Rogers are fond of saying, “Some customers are more equal than others.”1 One way to examine these differences is through customer profit (CP), the difference between the revenues and the costs associated with the customer relationship during a specified period. The central difference between CP and customer lifetime value (CLV) is that CP measures the past and CLV looks forward. As such, CLV can be more useful in shaping managers’ decisions but is much more difficult to quantify. Quantifying CP is a matter of carefully reporting and summarizing the results of past activity, whereas quantifying CLV involves forecasting future activity.