Not all customers are worth the same. The Customer Lifetime Value (CLV) is a crucial input for your retention offers, changes in your services model or changes in your product portfolio. CLV focuses on your customers’ potential for the future, not on their value and profit from the past.
Using CLV metrics improves the overall profitability of the organization and the return on investment of marketing campaigns.
Solution
Customer Lifetime Value (CLV) represents the net present value of a future profit or revenue from a specific customer. Instead of measuring the customer’s past value, CLV focuses on their future potential that has a significant impact on business decision-making, for example in the following areas:
- Targeting marketing and retention campaigns;
- Determining the level of customer services;
- Design of new potential products/business plans;
- Planning and forecasts of the entire business; and
- Portfolio valuation.
Thanks to a change in the retention process using CLV and Propensity to Churn models we improved client retention of a large Czech bank 4.9 times.
Benefits
- Using CLV to target campaigns generates higher revenues.
- CLV has the potential to decrease the customer churn rate and allows to retain customers with a high future value.
- CLV improves the overall profitability of the organisation and return on investment of marketing campaigns.
- CLV can function as the primary indicator of business performance.
Method
In the beginning, we define the purpose of the CLV model and the target, based on the given business-use case.
In the second stage, we start working with data that needs to be profiled, cleaned and accepted. We face the task of creating customer micro-segmentation that will explain the present value. The quality of the micro-segmentation determines the quality of the CLV model as a whole.
In the third stage, we work with the matrix to transition between microsegments. The distribution of customers by microsegment is projected for the future, and their future value is discounted in the present. The output is the allocation of discounted future values via the microsegment at the customer level.
In the fourth stage, CLV is visualised and interpreted using dashboards, and data provisions for other systems are generated. At this point, CLV can be utilized for business decisions and in the client's customer serving processes.