Understanding Customer lifetime value

Definition of Customer Lifetime Value:

There is a form of predicting in the ‘marketing' world, which determines as to how much of a business company will be able to make when they will build up the right kind of relationship with their customer. This is called the Customer Lifetime Value.

The Lifetime Customer Value which is just another way of saying Customer Lifetime Value tries to scrutinize the number of times you can do business with the same customer ones you have built a rapport with them. Now, why is that important, well by this way, you can check if your money goes down the drain or it kind of increases with time. You must be confused as to how money came into play in here. Think you are doing some form of e-business and you have to promote yourself, rather sell your product.

So, you go to some famous networking site or so and then you spend some cash to secure a place that will help you to promote your business. Here comes the most essential part where you need to get something in return. Consider you have spent around $100, and you get 100 customers out of it, this would mean that you spend $1 on each customer or in marketing terms, your Customer Acquisition Cost is $1. This way your CLV becomes $10 and your revenue turn out to be $1000. It might to seem to be that complicated when you get to read these books that we are about to mention.

Books to help you with this math problem:

No, it will not take you a lifetime to figure out how to conduct the calculation and here is how. Read these books and you will get to learn of the various ways and tricks on and of CLV.

Customer Lifetime Value: The Path to Profitability (Foundations and Trends(r) in Marketing) by V. Kumar
Driving Customer Equity: How Customer Lifetime Value is Reshaping Corporate Strategy by Roland Rust.

Examples of Customer Lifetime Value:

Typically, the customer lifetime value consists of four simple steps:

Predicting the remaining life cycle of a customer.
Predicting future revenues, on the basis of estimation of future products to be purchased or amount to be paid.
An average rough calculation of delivery costs of those items.
Examining the net value of those amounts in the present condition.

Example: $ 100 average amount monthly spent to be multiplied by 25% of the margin, divided by 5% of monthly churn that is equal to $ 500 LTV

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