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LIFE TIME VALUE OF CUSTOMER By : Kriti Avasthi Rayat Institute of Management

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Customer lifetime value (CLV) is referred to as the gold standard of customer loyalty and profitability.

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The lifetime value of a customer is a measure of the value of the customer to your business. It is the potential contribution of the customer to your business over a period of time. When you know the lifetime value of a customer, you have a benchmark for how much you would or should be willing to invest to acquire a customer.

How exactly do you measure customer lifetime value? :

How exactly do you measure customer lifetime value? CLV combines: (1) anticipated length of relationship with (2) estimated customer financial value, to create a predicted measure of how profitable that customer will be.

How can you quantify the "lifetime value of a customer"? :

How can you quantify the "lifetime value of a customer"? Estimate the profit for the transactions you expect to have with the customer over the period you expect to do business with him or her. If this is an unknown long term, use five years. You should collect statistics of the transactions done with customers and how long you keep customers. Also, factor in the benefit for referrals from your customers.

Here's an example: :

Here's an example: At a computer software store, customers make average purchases each year of $500. The average gross profit is 30%. Most customers do business with the store for five years. One out of three customers refer a new customer.


Conclusion Customer Lifetime Value is more than just a metric; it is a way of thinking. Focusing on your best customers will drive higher profit and sustained growth at a lower cost than trying to fill your business with new customers over and over again. Stay focused with this core approach, and you will be “hearing the bell ring” more and more.

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