customer lifetime value analysis - definition
ICLP – the global loyalty marketing agency – is an expert in customer lifetime value analysis.
Customer lifetime value analysis is the commercial process used to calculate or project how much a customer will spend with the company or brand over the lifetime of the customers association with that company or brand. For example, customer lifetime value analysis projects the amount of money customer ‘x’ will spend, over-time, before they defect and take their business elsewhere.
Customer lifetime value analysis is, in principle, no different from the calculation of the net value of an investment in shares. The company should only invest in those customers that it believes will be profitable due to future spend, advocacy, loyalty, etc. Customer lifetime value analysis not only considers a customer's expected net profit for each period but also factors in a 'rate of credit interest' to compensate for the anticipated change of value of that money over all periods (accounting for inflation). The customer's entire lifetime is calculated in this way, period by period, and the sum of those periods is the Customer Lifetime Value, hence the Customer lifetime value analysis process.
In summary, customer lifetime value analysis is about viewing the value of a customer in terms of how much product or service he or she will likely purchase during their lifetime, not just based on current transactions. By investing in customer lifetime value analysis, a marketeer gets a much more realistic picture of the value of keeping customers loyal, and the level of investment that they should funnel into loyalty marketing initiatives.
To find out more about customer lifetime value analysis and how ICLP can help your business, please visit ICLP-the global loyalty marketing agency.