Calculating and using Customer Lifetime Value in your firm.

1. Improving the Customer
Experience - Lifetime Value of a
Customer
Ed Kless
@edkless

2. “The customer never buys a
product. By definition the customer
buys the satisfaction of a want. He
buys value.”
Peter Drucker

3. $0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Cost
Price
Value

4. Calculating Customer Lifetime Value
Where GC is yearly gross contribution per customer, M is the (relevant)
retention costs per customer per year, n is the horizon (in years), r is the
yearly retention rate, d is the yearly discount rate.

5. Calculating Simplified
Customer Lifetime Value – (No
really!)
Where GC is yearly gross contribution per customer, r is the yearly
retention rate, d is the yearly discount rate.

6. Calculating Simplified Customer
Lifetime Value – Example
Example: If the gross contribution (profit) of a customer is $500 per
year, your retention rate is 95 percent, assume a discount rate of 2 percent
(using interest rate as a proxy), this would yield a CLV of $6,786.
So what and who cares?

7. How Retention Rate Affects CLV
$0 $2,000 $4,000 $6,000 $8,000 $10,000$12,000$14,000
80%
90%
95%
98%
$1,818
$3,750
$6,785
$12,250
Customer Lifetime Value

8. 8
0 1 2 3 4 5 6 7 8 9 10
Not at
all likely
Extremely
likely
Likelihood of recommending
 
 
   
Detractors Promoters
Passives
What is NPS?

9. Calculating Net Promoter Score
%P 30% 30%
-0- 45% 35%
%D 25% 35%
NPS 5 (5)

10. Why this matters!
“An increase in NPS of 5% increases profits by
25 to 95%.”
Fred Reichheld
Loyalty Rules!

11. Getting Customers on The Grid
• Customer name
• Lifetime Revenue
• Net Promoter Score
• Customer Likeability Score (or other index)

12. Customer Likeability Score (CLS)
1. Disagree strongly
2. Disagree
3. Disagree somewhat
4. Agree somewhat
5. Agree
6. Agree strongly
On a scale of 1-6, please rate your level of agreement with the following statement:
This customer is clearly a joy to work with.

13. The Grid
C B A
F E D
Net Promoter Score
Neutrals (7-8) Promoters (9-10)Detractors (0-6)
CustomerLikabilityScore
DislikeLike

15. Customers On The Grid
0
2
4
6
0 2 4 6 8 10
C B A
F E D
Net Promoter Score
Neutrals PromotersDetractors
CustomerLikabilityScore
DislikeLike

16. For more on the Sage Customer Loyalty
Program visit:
http://www.sagepartnermarketing.com
Navigate to: Partner Programs >> Partner Advantage >> Customer Loyalty Program

17. Value Gap
• Basic
– Customer name
– Revenue from the customer per some discrete period
– Value provided to the customer in that same period
• Advanced
– Customer name
– Value that could be provided over a future discrete period
– Possible acceptable price (revenue) for that provided value

18. Value Gap Analysis
Customer name Value Provided Revenue The Gap Potential Value Potential Revenue New Gap
Customer 1 1,000 500 500 2,000 1,250 750
Customer 2 - -
Customer 3 - -
Customer 4 - -
Customer 5 - -
Customer 6 - -
Customer 7 - -
Customer 8 - -
Customer 9 - -
Customer 10 - -
Customer 11 - -
Customer 12 - -
Customer 13 - -
Customer 14 - -
Customer 15 - -
Customer 16 - -
Customer 17 - -
Customer 18 - -
Customer 19 - -
Customer 20 - -
Total 1,000 500 500 2,000 1,250.00 750.00