Customer Lifetime Value to Prioritize Customer Experience Management

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Calculating customer lifetime value is 1 of 6 customer experience management success factors. It motivates executives and prioritizes employee engagement in differentiating customer experience.

See http://ClearActionCX.com

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Customer Lifetime Value to Prioritize Customer Experience Management

  1. 1. www.ClearActionCX.com Customer Lifetime Value Motivate Executive & Employee Engagement in Prioritized Customer Experience Improvement & Innovation
  2. 2. • $5,000 Annual revenue per customer • 10% Company profit margin • 2 Average # of loyal years • $1,000 Customer Lifetime Value ($5,000 x 10% x 2) As long as the cost is less than the CLV, the company should invest  $300 Cost of average sales call (salary, commission, benefits, expenses)  4 Average # of sales calls to convert prospect into a customer  $1,200 Cost of attracting a new customer ($300 x 4)  PLUS cost of advertising and promotion ÷ # new customers (+ overhead) Company is spending more to attract new customers than their lifetime value  bankruptcy! A Practical Use of CLV ©2011 ClearAction LLC. All rights reserved.
  3. 3. ©2011 ClearAction LLC. All rights reserved. CLV Myths • Long-term customers purchase more • Long-term customers are more desirable than short-term customers • Share of wallet increases as customer lifetime increases • Customer share-of-wallet is driven by increasing customer loyalty • Loyal customer are less sensitive • Loyal customers cost less to service than non-loyal customers • Loyal customers are always profitable customers • Customer satisfaction brings customer loyalty • Customer revenue is a good predictor of profitability  Loyalty Myths – Keiningham, Vavra, Aksoy, Wallard 
  4. 4. ©2011 ClearAction LLC. All rights reserved. Sources of Revenue 𝐂𝐋𝐕 = 𝑘=0 𝑛 Revenue − Costs Repeat purchases Price elasticity Share of wallet Upselling Cross-selling Word-of-mouth Price x x Duration  Converting Customer Value – Murphy, Burton, Gleaves, Kitshoff 
  5. 5. ©2011 ClearAction LLC. All rights reserved. Allocating Costs Gross profit contribution Partial overhead allocation Customer-related cost allocation Full allocation of customer costs • Averages: • Accounts: Customer profitability analysis: allocation of costs & revenues to specific customers  Converting Customer Value – Murphy, Burton, Gleaves, Kitshoff 
  6. 6. ClearActionCX.com See the whole presentation in ClearAction Insiders! © Copyright ClearAction LLC. All rights reserved.
  7. 7. ClearAction Consulting Clients “ClearAction taught us things that wouldn’t readily cross our minds and has increased our efficiency & accuracy in many areas. We highly recommend ClearAction as a business consultant.” © Copyright ClearAction LLC. All rights reserved. Partial List Send us a note: OptimizeCX@ClearActionCX.com
  8. 8. OptimizeCX@ClearActionCX.com tel +1 408 687 9700 Lynn Hunsaker ClearAction company/clearaction-llc +ClearActionCXO CustomerExperienceOptimization

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