ACCOUNTABILITY (W 1.6)

NON-FINANCIAL KPIs: CUSTOMER LIFETIME VALUE (CLV)

what do you know about the different elements of the customer journey?

customer journey has 2 different aspects:

• deep drivers

  1. trigger → experience, need & behaviour

  2. orientation → experience, need & behaviour

  3. purchase → experience, need & behaviour

  4. inexperienced → experience, need & behaviour

  5. experienced → experience, need & behaviour

  6. relationship → experience, need & behaviour

• brain heuristics

  • buyer journey (trigger → purchase)

  • user journey (inexperienced → relationship)

how do results financially vary across the customer journey?

• in the acquisition stage the profit is usually negative or small

• during the lifetime the profit increases

• at the end of the lifetime the profit declines, if the usage reduces or the contract is being ended

what are some ways you can influence the customer lifetime value?

1. successfully target profitable customers

2. developing existing customers through cross- & up-selling

3. retain profitable customers

what are the rough CLV percentages between the customers?

• if you manage to de-average the customer, there’s usually a big difference in value they provide

• ex. of a low CLV customer is an energy consumer that switches every year to get a discount

• good for the customer but not always for the company

• they need customers that stay longer for a (more) positive CLV

what do we need, in order to calculate CLV?

• we need understanding of interest & the time value of money

• 2 types of interest:

  • simple interest → interest is calculated on principal amount only

  • compound interest → interest is calculated on principal amount plus added interest

• example of both calculations: if the capital amount is €1,000, interest rate 10% & time 5 years, then:

  • simple interest: €1,000 + 5 × 10% = €1,500

  • compound interest: €1,000 × 1.10^5 = €1,610.51

why do we use compound interest?

• it’s used to calculate the future value of an investment

what’s the opposite of future value?

• it’s the present value

how do we calculate CLV with the simple method?

how do we calculate CLV with the advanced method?

• this formula uses the expected retention probability to determine lifetime

• a higher retention rate increases value

• improvements in margin (higher revenue or lower costs) increase value