Customer Lifetime Value is critical for understanding the total revenue a company expects from a single customer over their relationship with a product or service. It guides Product Managers in investment decisions for customer acquisition and retention, emphasising long-term growth over immediate profits and driving strategic customer relationship enhancements for sustainable business success.
Methodology:
- Define customer revenue model,
- Calculate the average purchase value,
- Determine purchase frequency,
- Calculate customer value,
- Determine average customer lifespan,
- Calculate Customer Lifetime Value,
- Analyse and interpret the results,
- Implement strategies to maximise Customer Lifetime Value.
Benefits:
- Informed marketing spend,
- Enhanced customer segmentation and personalisation,
- Strategic decision-making.
Limitations:
- Complexity in calculation and prediction,
- Risk of overemphasis on long-term value,
- Potential neglect of new or low-spending customers.