Required Assignment 6.

3
Lifetime Value of a Customer
Dr Chandramohan Asrani
Suggested time: 120 minutes

Q1. Write a note on the lifetime value of a customer and the factors affecting it.
Customers of any business can be divided into two broad categories

• One time customer, who will use our product/ services only once and may never return.
• Long term customer, who will keep using our services regularly/ periodically and for a
prolonged, finite, duration.

• The earnings from a one-time (one shot) customer are easy to calculate. The formula is
Billable price (minus) cost of product / service = Profit

• Calculating earnings from a long term/ recurring customer is complex and is known as
lifetime value of the customer or customer worth to the business. It is equal to total
earnings (asset margin) from a recurring customer over the period of their business
relationship with the business entity.
Estimating Lifetime value (worth) of a customer i.e. average income that a customer will
generate for the business throughout their relationship as a customer helps in several
key economic decisions by the C suite level executives. It is a key metric in deciding the
marketing budget, resource planning, short term as well as long term revenue
forecasting and profitability of the business.

The lifetime value of a customer depends on following factors and is calculated using
applicable values of these factors:
- The profits earned: This is revenue minus the cost of service / product
- The acquisition cost: This is sum of all marketing expenses (tools, resources, trainings
etc.) incurred to acquire a new customer for our business who purchases a product or
service from the business entity. Customer acquisition costs are usually related to
lifetime value of the customer. Hence it is expenses incurred to acquire a new recurring
customer.
- Customer retention cost: This is sum of all marketing expenses (tools, resources,
trainings etc.) incurred to retain an existing customer for a long period of time so they
purchase business’s service/ products repeatedly leading to increasing sales. These are
the marketing costs to win and retain customer loyalty.
- The attrition rate: Also referred to as ‘Churn rate’. This is the rate at which customers
stop patronizing the business despite all attempts made at retaining them through
customer retention activities. This is arrived at by dividing number of customers lost

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 divided by total number of customers at the beginning of the year (or the period if smaller
units like month or quarter are considered)
- The shrinkage factor: This is the value of money considered with regards to time; since
a significant part of money earned today will be realized later, it must be discounted
today for that. This is like reverse interest. When we deposit money in a bank, we earn
interest. So, reverse interest has to be calculated for money earned today on paper but
coming into account at a later date. Further, if the business has taken loans to run the
business, then the discount must as per the interest being paid on those loans. This is
also known as ‘Cost of Capital’.

Q2. What steps is your company taking to increase the customer's LTV?
I am a practicing Board Certified Family Physician; in practice for over 45 years.
Being a registered medical practitioner, we are not allowed marketing activities barring special
circumstances like shifting venue or change in timings etc – as per code of professional ethics
of National Medical Council (erstwhile Medical Council of India).
The only marketing tool a standalone practicing doctor can hope to use is ‘word of mouth’; and
for that we need a satisfied customer. Below are the few areas we paid attention to and got rich
dividends over the years in winning satisfied customers.
1. Resolving patient’s problems, concerns, doubts – regular update of clinical knowledge
as medicine changes almost by the day. I still spend 3-4 hours a week in updating and
have been taking lectures for other practitioners having realized teaching is the best
learning. Diagnosing a patient’s problem within a short time or by using minimal
investigations – all the time explaining to patient, in a lucid language, what is my thought
process and what am I expecting to confirm / rule out by that test.
2. Vocabulary – practicing in Mumbai, I speak six languages with grammatical fluency –
Hindi, English, Marathi, Gujarati, Sindhi and Punjabi. I can also use medically significant
words in Tamil and Malayalam (like headache, vomiting etc). This has helped a lot as
any patient is most comfortable describing their symptoms in their native language.
3. Subtle attempts at customer retention – have achieved this by proving that my team is
customer centric:
a. Inviting and comfortable ambience
b. Separate toilet for patients and team
c. A well-appointed reception desk
d. The non-clinical team trained in telephone skills, graceful clothing, manners and
etiquettes
e. Seeing patients by appointments reducing waiting time and still making
provisions for emergency walk-ins
f. Starting paid, digital consultation almost 25 years ago
g. Providing ‘single window’ concept of primary care services
i. 9 am to 6 pm nonstop; emergency availability 24*7*365 even when
overseas
ii. ECG
iii. Nebulizer
iv. Minor surgery

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 v. Pathology
vi. Comprehensive health checks
vii. Adult vaccinations
viii. Contraceptive advise
ix. Tackling chronic ailments like diabetes mellitus, hypertension, asthma,
vertigo etc. People do not even mind paying extra as it saves them from
specialist visits
x. Having contacts with nearby hospitals/ specialists so that we can get
appointments/ hospitalization without waiting.
xi. Tariff displayed at reception to ensure transparency.
xii. Maintaining digital data of each visit – so that the data can be retrieved
within few seconds even after an 8–10-year single visit. This is helped by
using Mac OS.
xiii. Tie-ups with corporates for their team members (helps acquisition as well)
The endeavor is to convert a one-shot customer (who may have walked in due to an
injury/ emergency) into a recurring customer.
The above has ensured a good retention rate such that out of 7 patients I saw on day
one of my practice (29-5-1977), 6 have expired and one still is my patient.
The above steps help in better acquisition (good word of mouth) and very good
retention.
Churn out is minimized by
- Offering value for money (even with charging a premium fee over competitors)
- Connecting digitally with patients who have relocated
- Using the power of web to manage chronic ailments even across borders
- Special appointments to patients travelling from far places to minimize their waiting.
Shrinkage factor is minimal as almost 95%+ business is money received on the spot. Few
corporates/ families pay monthly.
All of the above has helped sustain a large volume of practice as recurring practice – at
times even more than 2-3 decades.
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Note: This is a required assignment and counts towards your programme completion.

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