Customer Life Time Value (CLTV)
Competitive pressure forces an increasing number of companies to equip themselves with tools for guiding, assessing and monitoring CRM strategies. One of these is the value of a client over his lifetime, as a measurement of the profitability of clients over time and the company’s ability to create an appropriate value to achieving its profit objectives. This is a metric connected strictly to the level of interaction and the duration of the relationship with clients: for this reason it is of higher interest and application in sectors in which, typically, this relationship is intense and of medium/long term (e.g. bank sector).
Calculating the CLTV uses assumptions of two components: the survival probability and the client’s future value. The first is carried out via the creation of an individual survival curve which describes the probable duration of the relationship in the future, depending on past behaviour and time already spent together. While the second one consists of updating all future cash flows and costs for that relationship.
The estimate of CLTV, along with knowledge on the clients’ needs and expectations, allows us to develop proposals which are more appropriate and profitable for both parties, optimising the trade-off between advantages looked for by the client and the costs required to achieve products/services. In other words, a successful relationship with clients means achieving the highest mutual satisfaction.