Professional Documents
Culture Documents
Customer Lifetime Value
Customer Lifetime Value
A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so. Mahatma Gandhi
For salespeople
o Value is sales
When lifetime value is important, customer profiles and segments are based on future revenues from customers Data are collected from many sources sales contacts, trade shows, customer e-mails, customer Web site visits Data are assembled, analyzed and stored by others in the sales organization Salespeople use information to better manage their customer relationships and improve customer lifetime value
Feedback
80-20 Rule
The foundation for profitability and sales sustainability lies in the retention of customers
Customer Delight Over Time Knowledge of Customer Life Cycles A Relationship Focus
Not everything that can be counted counts, and not everything that counts can be counted Albert Einstein
Conceptualizing CLV
Calculating a customers lifetime value requires:
o Knowledge of the cost of acquiring the customer o Computations of the stream of revenues forthcoming from the customer o Computations of the recurring costs of delivering service to that customer
Net Margin
Recurring Revenues
Acquisition Cost
Thank You
Backup Slides
Determine
Where to put your retention dollars The value of each retention strategy Where to put your acquisition dollars How much to spend on acquisition
Acquisition Cost
Marketing + Sales
o Money you spend during the year.
Than
o Marketing+Sales/the number of new customers who actually make purchases from you each year.
Profits
NPV Profits : Gross Profits / Discount rate Cumulative NPV profits
NPV year 1 + NPV year 2 + NPV year 3
LTV
LTV :
Cumulative NPV profits in each year / original group of customers
Ridgeway Fashions
Assumption: The birthday club will be successful and there will be a 5 % referral rate.
Assumptions
5 percent of her customers will recommend Ridgeway to their friends or relatives. As a result we will have 5 percent more customers in year 2 than we otherwise would have had.
Assumptions
Spending rate, Loyal customers will buy more than new customers. o As customers drop out, those who are left are the more loyal customers. To set the club up in the 1st year will cost $15 per customer. o This includes training of the clerks to ask people to join the club and giving the clerks a commission of $5/customer sign up in addition: Getting the survey data Entering the data, Putting it into the database Creating the birthday club software Writing one letter to each members husband at birthday time. o In years 2 and 3 the costs are set at $3 per year. You will note that she is sending out birthday letters to all club members, even though many have already stopped buying in the store.
I would like to remind you that your wife Helenas birthday is coming up in two weeks on November 5th. We have the perfect gift for her in stock.
As you know, she loves Liz Claiborne clothing. We have an absolutely beautiful new suit in blue, her favorite color, in a fourteen, her size, priced at $232.00. If you like, I can gift it to you next week, so her birthday. Or, I can Please call me at (703) Sincerely yours, wrap the suit at no extra charge and deliver that you will have it in plenty of time for put it aside so you can come in to pick it up. 754-4470 to let me know which youd prefer.
Robin Baumgartner
Robin Baumgartner, Store Manager