This document discusses methods for calculating customer value and lifetime value. It defines customer lifetime value as the total value of a customer's purchases over the entire time they are a customer. Customer lifetime profit takes this a step further by factoring in the average profit per sale. Companies can use these metrics to determine how much to spend acquiring new customers and maintain profitable customer relationships. The document also discusses scoring models, customer portfolio analysis, and ABC analysis as additional tools to evaluate customers based on their value.
This document discusses methods for calculating customer value and lifetime value. It defines customer lifetime value as the total value of a customer's purchases over the entire time they are a customer. Customer lifetime profit takes this a step further by factoring in the average profit per sale. Companies can use these metrics to determine how much to spend acquiring new customers and maintain profitable customer relationships. The document also discusses scoring models, customer portfolio analysis, and ABC analysis as additional tools to evaluate customers based on their value.
This document discusses methods for calculating customer value and lifetime value. It defines customer lifetime value as the total value of a customer's purchases over the entire time they are a customer. Customer lifetime profit takes this a step further by factoring in the average profit per sale. Companies can use these metrics to determine how much to spend acquiring new customers and maintain profitable customer relationships. The document also discusses scoring models, customer portfolio analysis, and ABC analysis as additional tools to evaluate customers based on their value.
This document discusses methods for calculating customer value and lifetime value. It defines customer lifetime value as the total value of a customer's purchases over the entire time they are a customer. Customer lifetime profit takes this a step further by factoring in the average profit per sale. Companies can use these metrics to determine how much to spend acquiring new customers and maintain profitable customer relationships. The document also discusses scoring models, customer portfolio analysis, and ABC analysis as additional tools to evaluate customers based on their value.
2009/2010 What is customer value? Customer value relates to the value of customers? Customer value relates to the value that he receives from the business? Not all the customers are profitable for the company! How can we calculate the customer value? Customer Lifetime Value Lifetime Profit ABC Analyses Scoring Model Customer Portfolio Customer Lifetime Value The value of the customer during the relationship with the company CLV is an economical approach of the customer life cycle Customer Lifetime Value When many businesses look at a customer they see the value of the first sale. If you buy a product worth 100lei many companies would see you as being worth 100 lei in revenue. Then if, and only if, later on you buy, say, another 100 lei product from the company you will be seen as worth 200 lei in revenue Customer Lifetime Value Other businesses know that the true value of you is the value of all the purchases you have made plus the value of all the purchases you are likely to make in the future (discounted to the present) This is called the lifetime value (LTV). Example: How to estimate the lifetime value of an average customer Estimated Average Lifetime Value = (Average Sale) x (Estimated Number of times customers reorder) 1. Your estimated average sale is 150lei. 2. The estimated number of times customers reorder is 1.4. 150 lei x 1.4 = 210 lei. This is your estimate for the average LTV of a customer. Lifetime profit To determine how much a company can spend to acquire each customer, it must determine the lifetime profit (LTP) it receives from an average customer LTP = (Average Profit/Sale) x (The estimated number of times customer reorder) What does Lifetime profit means? the average amount of profit you are going to receive from each customer It means how much more you can spend to acquire each customer and still make a profit in the long run (you must add the average customer acquisition cost) Example: Lifetime profit 1. Average profit per sale is 50lei 2. Estimated number of times customers reorder is 1.4 3. 50 lei x 1.4 = 70lei - This is the average lifetime profit 4. Figure three plus your average customer acquisition cost is 100 lei. This is how much more you can spend to acquire each customer and still turn a profit. Customer equity is measured as the sum of the lifetime values of all the companys customers this indicator reflects how much a company is worth at a specific point in time as a result of its customer management efforts Customer equity Very important in deciding the value of a company It is important to know of how much value its customer base is in terms of future revenues The greater the customer equity (CE), the more future revenue in the lifetime of its clients; this means that a company with a higher customer equity can get more money from its customers on average than another company that is identical in all other characteristics. As a result a company with higher customer equity is more valuable than one without it Customer equity There are three drivers to customer equity, all of which refer to three sides of the same thing: Value equity: What the customer assesses the value of the product or service provided by the company to be; Brand equity: What the customer assesses the value of the brand is, above its objective value; Retention equity: The tendency of the customer to stick with the brand even when it is priced higher than an otherwise equal product; ABC Customer Analysis Total Value Total number Class 80% 15% A 15% 35% B 5% 50% C Scoring Model The transactions with the customer are evaluated with positive and negative points The results are weighted and based on this customers are grouped in catagories Customer portfolio Stars: the customers have a high benefit fromthe products of the company; long relationship, high lifetime profit; Poor dogs: these customers have a lower benefit fromt the products of the company; small value for the company; solution move turn theminto stars or reduce the group Question marks: value for the company; low benefit fromthe products; e.g. customers with a long relationship and because of habit they stay with the company; the actions of the competition are very dangerous; need to improve the products or to introduce extra services Cash cows: high benefit but low value for the company; e.g. big companies who receive high discounts; solution: increase the prices or lower the service level (fewer services) Critique on customer value measurement The models above have a common disadvantage, they evaluate only the buying behaviour; The customer value is directly influenced also fromthe payment behaviour; E.g. check if the customer sticks to the payment conditions Thank you for your attention during the semester!
