Written by;

Mojisola Olawepo

Some days ago, I worked on an analysis showing the customer life time value over a period of some years and while my focus was on revenue, profits and income after all deductions from all expenses that might been incurred during the year in focus – lol -, it suddenly hit me that the CUSTOMER can only be the determining factor of the lifetime value and probably the lifetime rewards for the business.

I remember an old saying; “CUSTOMER IS KING”. I couldn’t have agreed more with this phrase. The Customer’s decision about what he “wants” is key to a successful business analytical model. My elementary economics explains that customer wants are insatiable and satisfying these needs are almost impossible. However, if the power of choice is given to customers in creating their wants and expectations, businesses will thrive at a faster rate in income generation and absolute competitive advantage. More so, co-creating with customers’ wants in mind will lead to a skewed 100% win-win model in favour of both parties.

To this end, I hereby introduce to us a simple customer lifetime value model which can be can used by the business to determine the value of its customer base, skew wins for the business and the customer and a better way to cross-sell, up-sell and meet customer’s needs.

where;

r = the retention rate

P = the Future Profit Revenue

d = discount rate or Concession rate

t = time (days, weeks, months or years)

N = Number of years of Interest

A simpler explanation of the above model for the Customer lifetime value is Average Customer Spend (Transaction Value)+ Average Retention Time+ Average Visits per Year (Transaction Volume).

For now, I wouldn’t bore you with all the steps ran on R to achieve the Customer Lifetime Value of a customer data set but will rather highlight one core question going through the mind of businesses.

…What will this do for the business?

Simply put, my answer is MPCS!!!

Let me break this down….

1. M stands for Marketing: Strategic marketing wins on how much the business will spend to acquire a customer.
2. P stands for Product: Launching customer targeted products? Customer Life-Time Value answers the question: What kind of products and services can I offer to my customer base in the various class segments identified in the model.
3. C stands for Customer Support: Thinking maximizing your business retention strategies? Customer Life-Time Value separates active and profitable customers from inactive and non-profitable customers. Answers the questions on how much the business should spend on service and retaining of such customers.
4. S stands for Sales: What type of customers should the sales team spend the most time on trying to acquire. Customer Life-Time Value model answers this question.

I could just go on and on, but I guess I’ll have to conclude at this point that the winners of the Customer life time value model are both the customers and the business.

For consulting services,

Contact: Mojisola Olawepo, Tel: +2347088487195