Customer Lifetime Value, is an indicator that companies can use to measure the value of their customers in a period of time. It can be defined as “The sum of accumulated cash flows - discounted using the weighted average cost of captial (WACC)- of a customer over his or her entire lifetime with the company.” CLV focuses on customer service and long-term customer satisfaction, instead of short-term sales.
In other words, it is “as simple” as estimating the value a customer relationship represents to a company along the life span of such relationship. This great idea has been present for some time now but it has really stood out recently thanks to a change in vision from a client-based to a product-based one.
By using CLV marketing approaches, companies can make consistent decisions over time about client classification and retention, campaign dimensioning, product value proposal assessments and can help in determining the level of resources to be spent on each customer segment.
Which Prospects and Customers Should We Acquire, Retain or Grow?
Which Should We Not?
How Much Resources Should We Spend in These Activities?
We will explain CLV concept and techniques in detail trying to answer these questions in parts 2 and 3 of this blog post...