Customer Lifetime Value
Customer Lifetime Value (CLV) shifts customer-centric strategies to the next level. Instead of evaluating choices based on past customer performance you can now make decisions & strategies based on future customer potential.
Customer Lifetime Value (CLV) represents the net present value of the future profit or revenue at the customer level. Instead of measuring past customer value CLV focuses on the customer's future potential making it a strong driver of business decisions such as:
- Properly targeting marketing and retention campaigns
- Assigning levels of customer service
- Evaluating what-if product/business scenarios
- Planning and forecasting
- Portfolio valuation
- Generates additional revenue when used for customer targeting (e.g. in cross-sell, up-sell, servicing, etc.).
- Has the potential to decrease losses from customer churn (making a positive business case for retention).
- Improves profitability of the organization and ROI of marketing actions.
- Metric capable of acting as the main KPI across the organization.
- Based on portfolio micro-segmentation (either existing or ideally developed as part of the CLV project)
- Implementation of the CLV algorithm (SAS program or R package, applicable also in IBM SPSS)
- CLV reporting and monitoring (SAS VA, QlikView, Tableau etc.)
4.9x improved retention while boosting the PtC model with CLV
Important bank, 2014