Either way, the actual value of a customer to a business can be defined and calculated in different ways. Is LTV the net present value of the future stream of fully allocated profit from a customer? Or, would it be more appropriate to talk about the marginal financial contribution of the customer? Or, should we instead stick to free cash flow? Each of these economic values has its advantages and disadvantages.
However you decide to allocate profits and costs, we strongly recommend you pick up a book on the subject. Our own book, Return on Customer, has a number of sections and more than one appendix on the subject of modeling LTVs and the changes in customer LTVs that might be caused by your current actions.
Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.
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