Marketing Analytics: Measuring and Assessing Customer Lifetime Value (CLV) You are the owner of a smoothie shop in California. After hearing a podcast about customer relationship management (CRM), you decide to gather more information regarding customer behavior in your store to better understand the relationships that exist between your business and your customers. CRM is a comprehensive business model for increasing revenues and profits by focusing on customers.
Customer Lifetime Value (CLV) is particularly important when it comes to CRM and is often considered one of the most crucial metrics associated with a CRM system. Collecting data on customers and their relationships with a company (and commonly storing it within a CRM system) helps make it possible to calculate CLV, or the total amount a customer will spend throughout their relationship with a company.
After a review and analysis of your customer data you are able to determine the following information:
Average Value of Sales per Year per Customer: $120
Average Customer Retention Cost: $75
Customer Acquisition-oriented Marketing Expenses per Month: $1,000
Average Customer Retention Rate: 80%
You acquire an average of 25 new customers a month.
Use the following equations to help determine the CLV: Customer Acquisition Cost - Customer Acquisition -oniented Marketing Expenses per Monthi Number of New Customers Acquired per Month
Customer Lifetime Value [v1-Average Customer Retention Rate)]l x (Average Value of Sales per Year per Customer Average customer Acquisition Cost+ Average Customer Retention Cost)
This activity is important because marketing managers need to understand and know how to calculate customer lifetime a part of customer relationship management. Knowledge of CLV can inform a number of critical marketing factors as the development of strategies designed to aid in the acquisition, nurturing, and decisions related to such retention of customers.
The goal of this exercise is to test your understanding of CLV by considering this example.
You must (1) complete the spreadsheet and (2) answer the questions that follow to receive full credit for this exercise.
A B C
1 Monthly Customer Acquisition Number of New Average Customer
-oriented Acquired Customers Acquisition Cost
Marketing Expenses Per Month
2
Complete the mini-spreadsheet shown and use it to answer the following question: How many new customers per month would you need to have an average customer acquisition cost of $20 (assuming that Monthly Customer Acquisition-oriented Marketing Expenses were not changing)?