The concept of LTV


In spite of the obvious short and long term benefits, the concept of CLV  - Customer Lifetime Value - is hardly ever used outside certain industries with high acquisition costs. In this article loyalty expert Bent Svanholmer of Loyalty Management gives you an introduction and points out how you can work with CLV in your company.


1. Introduction
Based on more than 30 years of experience from creating and implementing loyalty strategies it is both my conviction and proved experience that CLV is the best basis of decisions concerning the market and customer strategy.

The reason being that CLV is an economic concept, where managers base their market investment decisions on calculations on both the short and long term results of different alternatives. Further more that CLV is suitable to be the main nominator in a business case concerning the predicted result of both the actual strategy and defined future alternatives. Finally it is a proven concept being used for decades in say the mail order business and other direct marketing companies.

2. CLV definition
CLV is defined as:

"The net value of all net payments from the moment the marketing efforts start towards a potential customer and until the customer definitely stops being a customer in the company".

CLV can be calculated for potential customers, existing customers and past customers. Research has shown that there is not always just one CLV for a specific customer. Thus in connection with customer WinBack there will be two different Customer Lifetime Value (CLV): the First CLV (the CLV before defection) and the Second CLV (the future CLV if winning back the customer). 

If a customer defects, then the company has to calculate a second CLV in order to decide whether to invest in winning back the customer or not. 

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