Customer productivity measurement

“Customer productivity measurement using CPA and CLV model”

# CPA= Customer Profitability Analysis# CLV= Customer Lifetime Value

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Presentation Outline:

Customer productivity

Customer profitability and it’s calculation

Customer Life-time value and it’s calculation

Customer Productivity & measurement

Productivity is an economic term describing the relationship between outputs as compared to inputs needed to produce those outputs . It’s a measure of efficiency. And customer productivity is the measures of revenue which is generated by a customer.

Productivity measurement is commonly defined as a ratio of a volume measure of output to a volume measure of inputs use.

Factors affecting productivity1) Capital investments in production2) Capital investments in technology 3) Capital investments in equipment 4) Economies of scale 5) Technological changes 6) Quality of products 7) Quality of management 8) General levels of education 9) Social environment 10) Geographic factors

Importance of Customer Productivity measurement

1) Efficiency of production2) Maximizing Productivity3) Income distribution4) production Process5) Monetary Process6) Market value7) Consumers translates to higher Profits

Customer Profitability Analysis (CPA)

Customer Profitability Analysis refers to the allocation of revenues and costs to customer segments or individual customers, such that the profitability of those segments and/or individual customers can be calculated.

The key benefits of CPA for business:

Empower management to make decisions that boost profits.

Better priorities customer service to attract and retain high-value

customers.

Optimize marketing spend.

Improve retention and loyalty campaigns results.

Increase sales through personalized offers.

Interpretation of CPAFirstly we assume a company sells its product laptop Dell to different regions. From these we take three regions for customer productivity measurement by using CPA and CLV model. There are three regions for distribution channel including Barisal, Patuakhali, and Dumki. Then we take all data hypothetically. These are given below:

Sales unit: 500 units, 450 units and 300 units consecutively for Barisal, Patuakhali, and Dumki regions.

Sales price: per unit 40,000 taka

Variable Cost: Direct material 14,000 taka Direct labor 3,500 taka Variable selling 1,000 taka Sales commission 500 taka and Other cost 200 taka per unit are fixed for each regions. Fixed Cost:Advertising cost 25 lakh taka and Selling and administrative expense 32 lakh taka for each region.

Customer Profitability analysis

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Customer Lifetime Value

Customer lifetime value can be defined as the dollar value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship. Customer lifetime value is an important concept in that it encourages firms to shift their focus from quarterly profits to the long-term health of their customer relationships.

Advantages of CLV Customer relationship as an asset. Monitoring the impact of management strategies and marketing Optimal level of investments. Focus long-term value of customers. Sensitivity analysis of customer. Optimal allocation of limited resources. Communication strategies. Measurement of customer loyalty.

Interpretation of CLV:

We calculate Customer Life time value for 5 years and all the data are taken by hypostatically.

Assumption:

Sales will increase at 10% every year Variable cost also will increase at 10% each year. Fixed expenses will remain constant for each year Other Market components also remain constant each year. Discount rate will be at 10% For calculate customer Life-time Value we take many customers from verious region. First

we take Barisal region and we select 500 customers and their average acquisition cost 2000 for each customer then we select Patuakhali and select 200 customers with 10,000 their acquisitions cost and finally we select 200 customers and their acquisition cost 25000 tk. each. We assume the retention rate 60% for 2016 and 5% increase for following years for every segment. Then we finally calculate the customer life-time value using be this information.

Calculation of CLV

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Continue..2015 year 2016 year 2017 year 2018 year 2019 year

Total Acquisiton Cost 2,000,000.00 New Customers Acquirerd 200.00 Average Acquisition Cost 10,000.00

Average customer Revenues 90,000.00 99,000.00 108,900.00 119,790.00 131,769.00 Average customer Cost 53,460.00 57,780.00 62,532.00 67,759.20 73,509.12 Average customer Profit 36,540.00 41,220.00 46,368.00 52,030.80 58,259.88

Customer Retaintion Rate 100% 60% 65.00% 70.00% 75.00%Cumulative Retainton Rate 100% 60% 39% 27% 20%

Likely Customer profit 36,540.00 24,732.00 18,083.52 14,204.41 11,928.71

Discount Rate 1.00 1.10 1.21 1.33 1.46 1.61

CLV - Per Year 10,000.00 33,218.18 20,439.67 13,586.42 9701.802063 7,406.79 Cumulative CLV (10,000.00) 23,218.18 43,657.85 57,244.27 66,946.07 74,352.86

Segment Patuakhali

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