Customer Lifetime Value (CLV) in Marketing Analytics

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Questions and Answers

What is included in the lifetime value of a customer?

Profits from direct transactions and referrals (correct)
Profits from indirect sources only
Profits from indirect sources and customer management system
Profits from direct transactions only

How does customer life cycle assessment calculate customer lifetime value?

Based on cash flows from customer plus cost of acquiring, selling, and servicing that customer
Based on cash flows from customer only
Based on cash flows from customer minus cost of acquiring, selling, and servicing that customer (correct)
Based on cost of acquiring, selling, and servicing that customer only

What is the formula for calculating customer lifetime value (CLV)?

(R1 + C1) - (R2 - C2) × d +. + (Rn - Cn) × dn–1
(R1 – C1) + (R2 + C2) × d +. + (Rn – Cn) × dn–1
(R1 – C1) + (R2 – C2) × d +. + (Rn – Cn) × dn–1 (correct)
(R1 – C1) - (R2 - C2) × d +. + (Rn - Cn) × dn–1

What does the model for customer lifetime value include?

Likelihood of retaining customers in the following period (A) Signup and view all the answers

How is each customer's expected contribution toward offsetting the company's fixed costs over their expected life calculated?

(Expected revenue - Expected cost at each stage) discounted to net present value at the company's target rate of return for marketing investments (D) Signup and view all the answers

What is included in the lifetime value of a customer?

Profits from direct transactions and indirect sources of profit (C) Signup and view all the answers

How is customer life cycle assessment used to calculate customer lifetime value?

By considering cash flows from customer and the cost of acquiring, selling, and servicing that customer (D) Signup and view all the answers

What is the formula for calculating customer lifetime value (CLV)?

(R1 – C1) + (R2 – C2) × d +. + (Rn – Cn) × dn–1 (D) Signup and view all the answers

What does the model for customer lifetime value include?

Introduction of the likelihood of retaining customers in the following period (D) Signup and view all the answers

What permits firms to understand the overall value of customers?

Customer databases and CRM (C) Signup and view all the answers

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Study Notes

Customer Lifetime Value (CLV)

The lifetime value of a customer includes the total value of a customer's purchases over their lifetime, as well as the value of referrals and other positive actions they may take.

Calculating Customer Lifetime Value (CLV)

Customer life cycle assessment calculates customer lifetime value by considering the total value of a customer's purchases over their lifetime.
The formula for calculating customer lifetime value (CLV) is: CLV = (Average Order Value x Number of Transactions) + Customer Lifespan + Retention Rate
The model for customer lifetime value includes the average order value, number of transactions, customer lifespan, and retention rate.

Customer Contribution

Each customer's expected contribution toward offsetting the company's fixed costs over their expected life is calculated by considering the customer's lifetime value and the company's fixed costs.

Understanding Customer Value

Customer life cycle assessment permits firms to understand the overall value of customers, including their lifetime value and contribution to the company's fixed costs.