Improving the Customer Experience - Lifetime Value of a Customer Ed Kless @edkless
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Improving the Customer Experience - Lifetime Value of a Customer
Ed Kless@edkless
“The customer never buys a product. By definition the customer buys the satisfaction of a want. He
buys value.”Peter Drucker
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Calculating Customer Lifetime Value
Where GC is yearly gross contribution per customer, M is the (relevant) retention costs per customer per year, n is the horizon (in years), r is the yearly retention rate, d is the yearly discount rate.
Calculating Simplified Customer Lifetime Value – (No really!)
Where GC is yearly gross contribution per customer, r is the yearly retention rate, d is the yearly discount rate.
Calculating Simplified Customer Lifetime Value – Example
Example: If the gross contribution (profit) of a customer is $500 per year, your retention rate is 95 percent, assume a discount rate of 2 percent (using interest rate as a proxy), this would yield a CLV of $6,786.
So what and who cares?
How Retention Rate Affects CLV
80%
90%
95%
98%
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000
$1,818
$3,750
$6,785
$12,250
Customer Lifetime Value
8
0 1 2 3 4 5 6 7 8 9 10
Not at all likely
Extremely likely
Likelihood of recommending
Detractors Promoters
Passives
What is NPS?
Calculating Net Promoter Score
%P 30% 30%
-0- 45% 35%
%D 25% 35%
NPS 5 (5)
Why this matters!
“An increase in NPS of 5% increases
profits by 25 to 95%.”
Fred ReichheldLoyalty Rules!
Getting Customers on The Grid
• Customer name
• Lifetime Revenue
• Net Promoter Score
• Customer Likeability Score (or other index)
Customer Likeability Score (CLS)
1. Disagree strongly2. Disagree3. Disagree somewhat
4. Agree somewhat5. Agree6. Agree strongly
On a scale of 1-6, please rate your level of agreement with the following statement:
This customer is clearly a joy to work with.
The Grid
C B A
F E DNet Promoter Score
Neutrals (7-8) Promoters (9-10)Detractors (0-6)
Cust
omer
Lik
abili
ty S
core
Dis
like
Like
Customers On The Grid
0 2 4 6 8 100
2
4
6
C B A
F E D
Net Promoter Score
Neutrals PromotersDetractors
Cust
omer
Lik
abili
ty S
core
Dis
like
Like
For more on the Sage Customer Loyalty Program visit:
http://www.sagepartnermarketing.com
Navigate to: Partner Programs >> Partner Advantage >> Customer Loyalty Program
Value Gap
• Basic– Customer name– Revenue from the customer per some discrete period– Value provided to the customer in that same period
• Advanced– Customer name– Value that could be provided over a future discrete period– Possible acceptable price (revenue) for that provided value
Value Gap AnalysisCustomer name Value Provided Revenue The Gap Potential Value Potential Revenue New Gap
Customer 1 1,000 500 500 2,000 1,250 750
Customer 2 - -
Customer 3 - -
Customer 4 - -
Customer 5 - -
Customer 6 - -
Customer 7 - -
Customer 8 - -
Customer 9 - -
Customer 10 - -
Customer 11 - -
Customer 12 - -
Customer 13 - -
Customer 14 - -
Customer 15 - -
Customer 16 - -
Customer 17 - -
Customer 18 - -
Customer 19 - -
Customer 20 - -
Total 1,000 500 500 2,000 1,250.00 750.00
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