This document discusses calculating and analyzing customer lifetime value (CLV). It provides formulas for calculating CLV based on yearly gross contribution per customer, retention rate, discount rate, and retention costs. An example calculation is shown. The document also discusses how retention rate affects CLV and introduces the concepts of net promoter score (NPS) and customer likeability score to categorize customers. It proposes mapping customers on a "grid" based on these metrics to identify the most and least valuable relationships.

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

15. 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

16. For more on the Sage Customer Loyalty
Program visit:
http://www.sagepartnermarketing.com
Navigate to: Partner Programs >> Partner Advantage >> Customer Loyalty Program

17. 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

18. 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