What every MBA professional should know about How to calculate Lifetime Value of a Customer

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Companies looking for achieving long-term goals should foresee beyond single deals in order to succeed. So it is important to consider the lifetime value of a customer as far as business growth is concerned. Lifetime Value of a Customer is the profit that can be expected from a particular customer during his lifetime. This can be calculated based on the history of spending, trends in buying and the rate of retention.

Historical Customer Lifetime Value
This is calculated from the profit the company has obtained from the history of purchase made by the customer. By knowing the total profit and the number of customers this can be easily calculated. Net profit of the company depends upon the price of individual product and this is used in the calculation of historical customer lifetime value.

Predictive Customer Lifetime Value
Companies should not only concentrate on historical values but also give importance to the profit that can be achieved in future. The main purpose of calculating predictive customer lifetime value is for determining how much more money will be sent by individual customers. The predictive customer lifetime value also depends upon factors such as discounts given as brand loyalty and the rate of retention of customers.

Recurring Costs and Customer Lifetime Value
If companies can foresee the amount of money that will be spent by the customer through recurring fee can easily calculate the lifetime value of the customer. If a customer buys an equipment and avail subscription for running that equipment then the amount which will be received from the customer can be calculated which gives the future spending trend. Managing Subscription service and Annual maintenance contract is easy in making the customers spend fixed money for the company.

 

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