Why (and How) Companies Should Calculate Customer Lifetime Value

But for companies looking to incorporate CLV, there’s often a challenge: the metric can be daunting to calculate. There are a variety of different formulas, some of which seem to emerge from an advanced calculus class, while others are simple but flawed. Even the more straightforward calculations can prove difficult if the data is hard to gather. At its most basic, the CLV calculation is the total revenue generated from an average customer minus the costs of acquiring and serving that customer.

On the revenue side, identify the average length of a customer relationship as well as the value they generate along the way—often this is simply an operational data revenue measurement andto experience data such as customer satisfaction or Net Promoter Score . The most successful formulas also incorporate a means of tracking fluctuations in customer spend over the years.

For expenses, include both your customer acquisition cost and also the amount you spend tending to your current customers—by continuing to market to them, engaging in customer service and support, and via operational expenses such as the cost of goods sold. Once you’ve gathered this data and settled on a CLV formula that makes sense for your business, you’re ready for the real fun: seeing how the number differs across products and segments, over time, and in response to changes such as a marketing campaign or the launch of a new product or feature. As you do so, you’ll likely see where you’re best at driving value, where your weak points lie, and where you might begin to make adjustments.

SAP is the world’s leading provider of business software – enterprise resource planning, business intelligence, and related applications and services that help companies...

Nigeria Nigeria Latest News, Nigeria Nigeria Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

Benjamin Millepied on why his company is in L.A. for the long haulThe founder of L.A. Dance Project is launching a festival, and directing the feature film 'Carmen,' and developing his live 'Romeo and Juliet,' and ...
Source: latimes - 🏆 11. / 82 Read more »

Customers aren't always right. Companies need to listen, observe, and test them — and these are the best ways.Turns out, customers don't always know the full story of what they want, writes Ashley Braiser, a growth strategy and startup expert.
Source: BusinessInsider - 🏆 729. / 51 Read more »

Warren Buffett and Jamie Dimon want companies and investors to embrace a new idea of value. Here's where to beginWarren Buffett and Jamie Dimon penned an attack on quarterly guidance and the short-term shareholder mindset last year, and support has followed from the Business Roundtable. But words are not actions, and beating earnings by a penny is still what counts. It's time for follow-through from companies on creating long-term value. I’ll stick with Ben Graham’s value method, creating Billionaires for nearly 100 years 😉 MarioGabelli
Source: CNBC - 🏆 12. / 72 Read more »