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Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
Customer Lifetime Value
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Customer Lifetime Value

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Calculating and using Customer Lifetime Value in your firm.

Calculating and using Customer Lifetime Value in your firm.

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  • 1. Improving the Customer Experience - Lifetime Value of a Customer Ed Kless @edkless
  • 2. “The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.” Peter Drucker
  • 3. $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 Cost Price Value
  • 4. Calculating Customer Lifetime Value Where GC is yearly gross contribution per customer, M is the (relevant) retention costs per customer per year, n is the horizon (in years), r is the yearly retention rate, d is the yearly discount rate.
  • 5. Calculating Simplified Customer Lifetime Value – (No really!) Where GC is yearly gross contribution per customer, r is the yearly retention rate, d is the yearly discount rate.
  • 6. Calculating Simplified Customer Lifetime Value – Example Example: If the gross contribution (profit) of a customer is $500 per year, your retention rate is 95 percent, assume a discount rate of 2 percent (using interest rate as a proxy), this would yield a CLV of $6,786. So what and who cares?
  • 7. How Retention Rate Affects CLV $0 $2,000 $4,000 $6,000 $8,000 $10,000$12,000$14,000 80% 90% 95% 98% $1,818 $3,750 $6,785 $12,250 Customer Lifetime Value
  • 8. 8 0 1 2 3 4 5 6 7 8 9 10 Not at all likely Extremely likely Likelihood of recommending         Detractors Promoters Passives What is NPS?
  • 9. Calculating Net Promoter Score %P 30% 30% -0- 45% 35% %D 25% 35% NPS 5 (5)
  • 10. Why this matters! “An increase in NPS of 5% increases profits by 25 to 95%.” Fred Reichheld Loyalty Rules!
  • 11. Getting Customers on The Grid • Customer name • Lifetime Revenue • Net Promoter Score • Customer Likeability Score (or other index)
  • 12. Customer Likeability Score (CLS) 1. Disagree strongly 2. Disagree 3. Disagree somewhat 4. Agree somewhat 5. Agree 6. Agree strongly On a scale of 1-6, please rate your level of agreement with the following statement: This customer is clearly a joy to work with.
  • 13. The Grid C B A F E D Net Promoter Score Neutrals (7-8) Promoters (9-10)Detractors (0-6) CustomerLikabilityScore DislikeLike
  • 14. Customers On The Grid 0 2 4 6 0 2 4 6 8 10 C B A F E D Net Promoter Score Neutrals PromotersDetractors CustomerLikabilityScore DislikeLike
  • 15. For more on the Sage Customer Loyalty Program visit: http://www.sagepartnermarketing.com Navigate to: Partner Programs >> Partner Advantage >> Customer Loyalty Program
  • 16. Value Gap • Basic – Customer name – Revenue from the customer per some discrete period – Value provided to the customer in that same period • Advanced – Customer name – Value that could be provided over a future discrete period – Possible acceptable price (revenue) for that provided value
  • 17. Value Gap Analysis Customer name Value Provided Revenue The Gap Potential Value Potential Revenue New Gap Customer 1 1,000 500 500 2,000 1,250 750 Customer 2 - - Customer 3 - - Customer 4 - - Customer 5 - - Customer 6 - - Customer 7 - - Customer 8 - - Customer 9 - - Customer 10 - - Customer 11 - - Customer 12 - - Customer 13 - - Customer 14 - - Customer 15 - - Customer 16 - - Customer 17 - - Customer 18 - - Customer 19 - - Customer 20 - - Total 1,000 500 500 2,000 1,250.00 750.00

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