Customer life time value

Two days back I got a call from one of my customer who was in need of service support. I forwarded this request to my service head and I got a reply  that I should not entertain this specific case as lot of free services have already been given and at this moment we could not be able to afford giving  free services, when business is slow and economy is weak. I was not surprised, it was absolutely correct and I agreed to that. 

I said- Okay, then in that case we need to share this with customer and ask them to help us out. We need to talk to them with proper fact and figures and seek their opinion on the issue.

When all this was happening, I was thinking how to judge whether we are over investing on some customer and under investing on others. How to decide this? There are so many factors which drive this decision and most important of them is customer life time value and customer centricity.

Customer centricity reveals how to increase profits from your best customers, finding more like them and avoid over-investing in the rest. Learn where customer relationship management went wrong and how to fix it. 

Knowing what your customers are worth is the secret to focusing your time and money, where it makes the most difference. You can’t provide all the things to all of your customers, so you need to learn to find out who really matters to your success and there comes in  – CUSTOMER LIFE TIME VALUE (CLV). CLV is the present value of the future cash flows associated with a particular customer. It’s a forward looking concept, we should not confuse with customer’s past profitability. Here one more thing I would like to add – concept of Recency & Frequency. Recency indicates how customer has done business with us recently and frequency indicates how frequently they are doing business with us.

Let me ask you one question. I have Customer-A who had purchased 10 machines from me in 2008 and after that he doesn’t  have any business with us. I have another customer, Customer-B  who has purchased 3 machines from me in 2015. In your view whose probability of buying machine in next two years is more?