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Customer Lifetime Value Analysis

We live in a world of a very high competition and percent of customers that are not loyal to just one supplier is increasing every month. That’s why it is very important to understand the customer lifetime value and that’s why it is very important, that we know how much better and cheaper it is to keep a customer than to try to find a new one. I will try to present you the basics of customer lifetime value analysis in this article.[ad#ad-4]

When starting a customer lifetime value analysis, we need to ask ourself what are the costs of getting a customer for us. We need to calculate everything here, the advertising, time spent talking to them, costs of promotional gifts and every other cost that might come along when getting customers.

Now on the other hand, we need to calculate everything that this customer brings to us. The direct income and of course the free promotion that he gives to his friends in case he is happy with our services or product.

Once we have both written and ready for analysis, we can start doing our customer lifetime value analysis. First we take all the income/profit from a customer. Then we deduct all the costs that came with getting and keeping that customer! Remember that keeping a customer also costs money and we need to calculate this into customer lifetime value analysis as well! What we get is a customer lifetime value. We must consider the time this customer will or at least could stay out custmer. If we sell motocross bikes, we cannot make count on this person buying bikes when he is 70 years old right?

So to sumarize, we need to consider all the costs, all the profit and the time this person will stay our customer and then we can make a good customer lifetime value analysis for our company.

Written by: Matt

We also suggest this relevant article if you have time: 4 basic functions of management

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