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Marketing Metrics - Chapter 5
Marketing Metrics - Chapter 5
MARKETING METRICS
TS. LÊ THÙY HƯƠNG
KHOA MARKETING
2
Chapter 5
Customer Profitability
5.1 Customers, Recency, and Retention 3
Customer Lifetime Value (CLV): The present value of the future cash
flows
When margins and retention rates are constant, the following formula
can be used to calculate the lifetime value of a customer relationship:
Exercise:
TH True milk sells fresh milk for 8,000 VND a box.
Depreciation of unit fixed costs is VND 500, unit variable
cost is VND 5,500. Retention Rate = 85%Discount Rate =
1%. Calculate CLV of a customer.
5.4 Prospect Lifetime Value 12
Prospect lifetime value is the expected value of a
prospect. It is the value expected from the prospect minus
the cost of prospecting.
EXAMPLE
During the past year, a regional pest control service spent $1.4 million and
acquired 64,800 new customers. Of the 154,890 customer relationships in
existence at the start of the year, only 87,957 remained at the end of the year,
despite about $500,000 spent during the year in attempts to retain the
154,890 customers.
Average acquisition cost is $1,400/64.8 = $21.60 per customer.
Average yearly retention cost is $500,000/87,957 = $5.68.
5.5 Acquisition Versus Retention Cost 18
Exercise
A coffee shop last month spent $7,000 on acquiring
1,000 new customers and $4,000 on 700 customers
remaining at the end of the month. Compare Average
acquisition cost and Average yearly retention cost of
the coffee shop.