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A Step-By-Step Guide To Calculating Customer Lifetime Value (CLV)
A Step-By-Step Guide To Calculating Customer Lifetime Value (CLV)
to Calculating
Customer Lifetime
Value (CLV)
Prepared by: Geoff Fripp, Adjunct Marketing Lecturer
The University of Sydney
http://www.clv-calculator.com/
What is Customer Lifetime Value?
Customer lifetime value is a measure of customer
profitability over time
CLV can be defined as a measure of a customers
aggregate profit to the firm over the total time that the
customer deals with the firm
CLV is calculated as a single dollar number, which
summarizes the net profit/loss position of the customers
total relationship with the firm
It is calculated on per customer basis, but is more usually
determined for an the average customer within a
particular market segment
A firm will calculate multiple CLVs for different customer
segments
Two calculation methods
The Simple CLV Formula
THE FORMULA
Annual profit contribution per customer X
Average number of years that they remain a customer
Less the initial cost of customer acquisition
We need to calculate
this information
CLV Calculation: Step One
Cumulative retention???
Likely Customer Profit rate is the
???compounding
??? effect
??? of losing
??? customers
We start with 100% of customers and we keep 60% in year 2. In year 3 we
Discount Rate keep 65% 1of those
1.10 remaining,
??? which
???is 65% ???
of the 60%???= 39%
http://www.clv-calculator.com/