Customer Lifetime Value is an important metric and it has potential to be valuable in running a wide range of companies. One thing that is useful with any approach is to say what is it for? This seems like too simple a question to be valuable but often that isn’t true. Asking ‘what is this for?’ can sometimes help explain what are the best choices in developing, as well as using the metric.
V. Kumar (a major academic in the field of marketing analytics) outlined the uses of CLV in a piece for a book on CLV. He outlined things that a CLV based strategy could help with. These include: “select the best customer, make loyal customers profitable, optimally allocate the resources, pitch the right product to the right customer at the right time, link acquisition and retention to profitability, prevent customer attrition, encourage multi-channel shopping behavior, and maximize brand value”. (Kumar, 2006)
Kumar details an approach to calculate CLV. This is high level but useful to give an idea of what is going on. This work was 14 years ago now and looking back with the benefit of hindsight I think it could benefit from an update. In doing so I really like the idea outlined in the article. Stating your uses upfront and then outlining how the metric achieves them. Then, ideally, one could review whether the metric worked for all the outlined uses and how.
I am a great believer in the approach of saying why, before you say how, and then returning to the why to explain your how choices in creating the metric.
Read: V. Kumar (2006), CLV: The Databased Approach in David Bejou, Timothy Keiningham, Lerzan Aksoy editors, Customer Lifetime Value: Reshaping the way we manage to maximize profits, Routledge