For an updated version of this presentation: https://www.slideshare.net/clearaction/customer-lifetime-value-to-prioritize-customer-experience-management-125751130 Calculating customer lifetime value is 1 of 6 customer experience management success factors. It motivates executives and prioritizes employee engagement in differentiating customer experience. See https://ClearAction.com

1. www.ClearActionCX.com
Customer Lifetime Value
Motivate Executive & Employee Engagement
in Prioritized Customer Experience Improvement & Innovation

2. • $5,000 Annual revenue per customer
• 10% Company profit margin
• 2 Average # of loyal years
• $1,000 Customer Lifetime Value ($5,000 x 10% x 2)
As long as the cost is less than the CLV, the company should invest
 $300 Cost of average sales call (salary, commission, benefits, expenses)
 4 Average # of sales calls to convert prospect into a customer
 $1,200 Cost of attracting a new customer ($300 x 4)
 PLUS cost of advertising and promotion ÷ # new customers (+ overhead)
Company is spending more to attract new customers than their lifetime value
 bankruptcy!
A Practical Use of CLV
©2011 ClearAction LLC. All rights reserved.

3. ©2011 ClearAction LLC. All rights reserved.
CLV Myths
• Long-term customers purchase more
• Long-term customers are more desirable than short-term customers
• Share of wallet increases as customer lifetime increases
• Customer share-of-wallet is driven by increasing customer loyalty
• Loyal customer are less sensitive
• Loyal customers cost less to service than non-loyal customers
• Loyal customers are always profitable customers
• Customer satisfaction brings customer loyalty
• Customer revenue is a good predictor of profitability
 Loyalty Myths – Keiningham, Vavra, Aksoy, Wallard 

4. ©2011 ClearAction LLC. All rights reserved.
Sources of Revenue
𝐂𝐋𝐕 =
𝑘=0
𝑛
Revenue − Costs
Repeat purchases
Price elasticity
Share of wallet
Upselling
Cross-selling
Word-of-mouth
Price x x Duration
 Converting Customer Value – Murphy, Burton, Gleaves, Kitshoff 

5. ©2011 ClearAction LLC. All rights reserved.
Allocating Costs
Gross profit contribution
Partial overhead allocation
Customer-related cost allocation
Full allocation of customer costs
• Averages:
• Accounts:
Customer profitability analysis:
allocation of costs & revenues to specific customers
 Converting Customer Value – Murphy, Burton, Gleaves, Kitshoff 

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CustomerExperienceOptimization