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Customer Lifetime Value
Improved
decision-making through Customer Lifetime Value
Many
organisations make strategic and operational decisions partly
based on new customer acquisition costs, yet is the cost per new
customer really the issue? Probably not, because the cost per new
customer has to be weighed against the length of the
LifeCycle.
Customers who
are the cheapest to acquire may have the shortest LifeCycles, and
customers who are expensive to acquire might have very long
LifeCycles. This is where LifeTime Value and LifeCycle tracking
can add significant value in strategic as well as operational
decision-making.
The LifeTime
Value of a customer is the net profit the customer generates over
their
LifeCycle. It
is not essential to figure out the exact monetary LifeTime Value
of a customer. The key for an organisation is to understand the
relative LifeTime Values of its customers, and use this
information to make decisions about allocating marketing
ressources to ideas that generate high potential value customers,
and away from ideas generating low potential value
customers. Understanding what the
LifeCycle looks like
makes it possible to identify the highest LifeTime Value customers
relative to each other.
LP helps
businesses work out their customers’ LifeTime Values in order to
support strategic decision-making and ensure that resources are
allocated towards higher potential value customers and away from
lower potential value customers. And that is the reason businesses
want to look at LifeTime Value in the first place.
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