Leveraging Customer Lifetime Value to Increase Return on Marketing Investment (ROMI)s

Introduction

As "one-to-one marketing" begins to permeate mainstream business practices, organizations in highly competitive and saturated markets struggle to gain an advantage over one another. As part of the ongoing effort to differentiate products and services, best-in-breed organizations are now using a tool called Customer Lifetime Value (CLV). CLV is "a marketing metric that projects the value of a customer over the entire history of that customer's relationship with a company." *

Customer Lifetime Value is an appealing marketing metric because it allows companies to know approximately how much each of their customers will be worth in dollar terms, giving them the ability to spend their dollars with visibility of the short- and long-term returns.

Components of Customer
There are various calculations for CLV, depending mainly on the potential uses of CLV. The calculation below (see Figure A) simply computes the present on the nature of the customer relationship.

Figure A. Calculating Customer Value

Customer Lifetime Value =

Net Present Value [Lifetime Estimate* (Future Periodic Revenue - Costs)]