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Added for You - Customer Lifetime Value for Value-Based Servicing, a Realistic Analysis
I was employed by the Yellow Pages for nearly 25 years as a sales consultant. During that time, I worked with over 3000 businesses and averaged 100 new businesses each year. I got a first-hand look at what the owners planned and implemented. It was an enlightening experience. Although my focus was on marketing, I saw the thinking process of retail and service businesses from an insiders perspective. They were a diverse group of companies; restaurants, dentists, car dealers, plumbers, carpet cleaners and too many to list. But they all had one thing in common. The optimism of entrepreneurship. It’s a wonderful thing. The hope of success and striking it rich. Yet they also lacked some simple elements that I felt would also have led to their success. Today I am reti
Each Business should evaluate:
• The readiness of its Organization, vis-a-vis predictive modeling for CLV
• The available data sources, relating to the factors affecting the CLV
• The cost to build and maintain each of the feasible options of a CLV model, in order to compare them
• The risk of building a complex model which is not successful in estimating accurately CLV, as promised
• The analysis of the additional insight and expected gains by the more sophisticated model vis-?-vis the additional cost incurred (not an easy task)
For the above reasons (costs & risks), man
After you’ve completed the inventory of existing files, the next step is to establish user-friendly retention guidelines. Often, offices are glutted with paper and computer files because people using them aren’t given guidelines about what to keep and what to eliminate. Ironically, some organizations do have such guidelines, but they’re not communicated to the people who really need them, or not provided in a user-friendly form. One company I worked with had a guidebook that was nearly a hundred pages long, but poorly organized, and contained information most people didn’t need.As a general rule, retention guidelines are most useful when organized by department, but it’s helpful to know what other departments keep. For example, in one company I discovered
A strict approach to the definition of CLV (or LTV) is the net present value of future cash inflows and outflows or profits (based on the principles of financial management), related to a specific Customer. An important factor affecting the CLV is the retention rate (or alternatively the Customer lifecycle termination probability).
Theoretically speaking, a comprehensive assessment of customer value should comprise all different aspects of a customer’s contribution to the Business’s success (e.g. referrals to other Customers, cross selling potential).
A number of different approaches of varying complexity have been proposed for the calculation of the CLV:
• Some focus on cash inflows and do not integrate the customer survival factor
• Some estimate the cash inflows only: the revenue that this Customer is expected to contribute to the Business in the future.
• Some approaches which are more complicated, attempt to estimate both cash inflows as well as cash outflows: the revenue that this Customer is expected to produce for the Business in the future, as well as the Customer acquisition, service and marketing expenses.
• Some include also elements relating to the value gained from Customer referrals as well as cross selling & up selling.
All these approaches may or may not be suitable to the context of a specific Business. Asserting that a model which does not incorporate all CLV factors is invalid or incomplete, may be of academic value, but in the real Business world things are not so simple.
It can be easily understood that the estimation of the CLV, according to the above ‘strict approach’ definition is a very difficult task. This is due to the following reasons:
• The difficulty in the estimation of the duration before Customer lifecycle termination (survival probability). The business needs to implement a so-called survival function which is time-dependent, and apply it to each Customer. Moreover a survival function has its limitations since it only gives the probability of a Customer ‘surviving’ beyond a certain point in time.
• It can be difficult to assign costs related to a specific Customer (acquisition, marketing, serving, retaining, terminating). If the Business is not applying cost accounting at the Customer level, cost assignments can only be based on averages (e.g. cost analysed per Customer segment).
• The availability and quality of information related to the factors affecting CLV. Historical information may also be needed.
Each Business should evaluate:
• The readiness of its Organization, vis-a-vis predictive modeling for CLV
• The available data sources, relating to the factors affecting the CLV
• The cost to build and maintain each of the feasible options of a CLV model, in order to compare them
• The risk of building a complex model which is not successful in estimating accurately CLV, as promised
• The analysis of the additional insight and expected gains by the more sophisticated model vis-?-vis the additional cost incurred (not an easy task)
For the above reasons (costs & risks), mana
As its name suggests Geotextiles refers to textiles related to earth or soil. When any permeable material used with rock, soil or earth it is termed as Geotextiles. The basic function of this technology is to prevent soil erosion to strengthening heavy concrete structures. This technology has not yet gained much attention in India, but is widely used in many countries for construction of bridges, roads, railway tracks to improve its strength. Many researchers have view that this technology is not newly developed but is in use from past thousands of years. Formation of GeotextilesGeotextiles can be formed of synthetic fibers, natural fibers or combination of the two. In past Geotextiles were made of natural plant fibers while today are usually formed of sy
A number of different approaches of varying complexity have been proposed for the calculation of the CLV:
• Some focus on cash inflows and do not integrate the customer survival factor
• Some estimate the cash inflows only: the revenue that this Customer is expected to contribute to the Business in the future.
• Some approaches which are more complicated, attempt to estimate both cash inflows as well as cash outflows: the revenue that this Customer is expected to produce for the Business in the future, as well as the Customer acquisition, service and marketing expenses.
• Some include also elements relating to the value gained from Customer referrals as well as cross selling & up selling.
All these approaches may or may not be suitable to the context of a specific Business. Asserting that a model which does not incorporate all CLV factors is invalid or incomplete, may be of academic value, but in the real Business world things are not so simple.
It can be easily understood that the estimation of the CLV, according to the above ‘strict approach’ definition is a very difficult task. This is due to the following reasons:
• The difficulty in the estimation of the duration before Customer lifecycle termination (survival probability). The business needs to implement a so-called survival function which is time-dependent, and apply it to each Customer. Moreover a survival function has its limitations since it only gives the probability of a Customer ‘surviving’ beyond a certain point in time.
• It can be difficult to assign costs related to a specific Customer (acquisition, marketing, serving, retaining, terminating). If the Business is not applying cost accounting at the Customer level, cost assignments can only be based on averages (e.g. cost analysed per Customer segment).
• The availability and quality of information related to the factors affecting CLV. Historical information may also be needed.
Each Business should evaluate:
• The readiness of its Organization, vis-a-vis predictive modeling for CLV
• The available data sources, relating to the factors affecting the CLV
• The cost to build and maintain each of the feasible options of a CLV model, in order to compare them
• The risk of building a complex model which is not successful in estimating accurately CLV, as promised
• The analysis of the additional insight and expected gains by the more sophisticated model vis-?-vis the additional cost incurred (not an easy task)
For the above reasons (costs & risks), man
Consultants tend to be expensive. A coach instead, may charge the same price per hour, but coaches never dedicate all their time to a single job. In fact you could think of the same construction hiring a consultant. A flexible consultant would be able to deliver according to your requirements. Two to three days a month would be possible. The question remains; what will be delivered?Before continue reading this article it might be interesting to take one minute of your time for a simple assessment; the title gives away most of the idea: One Minute Assessment: Cost & RevenueAnother way therefore, is not (only) to focus on costs. But on revenues.You could adapt the pricing mechanism for the consulting vacancy you are contempla
• Some include also elements relating to the value gained from Customer referrals as well as cross selling & up selling.
All these approaches may or may not be suitable to the context of a specific Business. Asserting that a model which does not incorporate all CLV factors is invalid or incomplete, may be of academic value, but in the real Business world things are not so simple.
It can be easily understood that the estimation of the CLV, according to the above ‘strict approach’ definition is a very difficult task. This is due to the following reasons:
• The difficulty in the estimation of the duration before Customer lifecycle termination (survival probability). The business needs to implement a so-called survival function which is time-dependent, and apply it to each Customer. Moreover a survival function has its limitations since it only gives the probability of a Customer ‘surviving’ beyond a certain point in time.
• It can be difficult to assign costs related to a specific Customer (acquisition, marketing, serving, retaining, terminating). If the Business is not applying cost accounting at the Customer level, cost assignments can only be based on averages (e.g. cost analysed per Customer segment).
• The availability and quality of information related to the factors affecting CLV. Historical information may also be needed.
Each Business should evaluate:
• The readiness of its Organization, vis-a-vis predictive modeling for CLV
• The available data sources, relating to the factors affecting the CLV
• The cost to build and maintain each of the feasible options of a CLV model, in order to compare them
• The risk of building a complex model which is not successful in estimating accurately CLV, as promised
• The analysis of the additional insight and expected gains by the more sophisticated model vis-?-vis the additional cost incurred (not an easy task)
For the above reasons (costs & risks), man
Your work history becomes a key focus in a job interview, usually right after the requisite pleasantries of whether you had difficulty finding your way, comments about the traffic and weather, and an offer of coffee or water.As you settle back in your chair, trying to look a lot more relaxed than you feel, the interviewer picks up your resume or application and starts to ask for details about your prior experience.If you have a resume that specifies quantifiable results, now is your chance to expand on that. If you increased sales by 20% per quarter or completed a departmental reorganization that resulted in a budget reduction of 10%, you are on your way. Obviously such achievements outlined in your resume impressed the potential employer enough to
• It can be difficult to assign costs related to a specific Customer (acquisition, marketing, serving, retaining, terminating). If the Business is not applying cost accounting at the Customer level, cost assignments can only be based on averages (e.g. cost analysed per Customer segment).
• The availability and quality of information related to the factors affecting CLV. Historical information may also be needed.
Each Business should evaluate:
• The readiness of its Organization, vis-a-vis predictive modeling for CLV
• The available data sources, relating to the factors affecting the CLV
• The cost to build and maintain each of the feasible options of a CLV model, in order to compare them
• The risk of building a complex model which is not successful in estimating accurately CLV, as promised
• The analysis of the additional insight and expected gains by the more sophisticated model vis-?-vis the additional cost incurred (not an easy task)
For the above reasons (costs & risks), man
What makes exhibits successful is who are behind the exhibits. These are the people who are aware of the do's and don'ts in an exhibit.Some exhibitors tend to be oblivious of the little things that they should consider during their exhibits. These little things actually help a lot in the success of such exhibits.These following tips will surely make the most of your exhibit:"Stand up straight"Stand and do not sit. Always be attentive. Give me that smart look."Always smile"They say smiling makes you younger and it also makes your aura good. If you always bring smiles with you, people will certainly approach you. You should look pleasing to every person that you will be interacting with."No drinking, smoking and eati
Each Business should evaluate:
• The readiness of its Organization, vis-a-vis predictive modeling for CLV
• The available data sources, relating to the factors affecting the CLV
• The cost to build and maintain each of the feasible options of a CLV model, in order to compare them
• The risk of building a complex model which is not successful in estimating accurately CLV, as promised
• The analysis of the additional insight and expected gains by the more sophisticated model vis-?-vis the additional cost incurred (not an easy task)
For the above reasons (costs & risks), managers are often reluctant to approve complex CLV modeling projects.
In order to overcome the Customer survival prediction issue, the Business can calculate the retention rates achieved in the past and based on these produce an estimate for the future (alternatively, an average Customer lifecycle duration per product, can be used to simplify measurements). However, in certain markets, the calculation of the yearly retention rate is not a straight forward task: a Customer termination, cannot be clearly identified before a certain time period.
CLV or an equivalent ranking can be measured per Customer segment instead of being measured per individual Customer. This can simplify the process substantially, by applying the segment retention rate and segment average cost per Customer. However, this can only be meaningful, if the segmentation mode is sufficiently aligned to the factors affecting the CLV.
The efficient application of CLV is not an easy task. A Customer about to churn has a reduced CLV, if the CLV model takes into account a churn probability. Should a business lower the Customer service level, according to a value-based servicing approach, or try to retain this Customer? The Business should try to retain a profitable Customer.
Before implementing a value-based servicing strategy, Organizational issues should also be evaluated:
• Organizational readiness should be evaluated: business processes in place, CTP’s structured to handle the value based approach, CRM information systems supporting the value ranking, trained people adopting the value-based approach
• The value-based servicing capability, related to a sophisticated CLV valuation which entails many different service levels
• How often should the CLV or equivalent value ranking, be updated. Is this realizable by the business infrastructure: does the Business have a dedicated infrastructure to calculate analytics like the Customer value rankings, in order to feed the operational CRM without computationally loading it.
A Business with no prior experience on the use of CLV should start with a simple approach: a limited complexity Customer value model. An RFM (recency – frequency – monetary) score can be used as a proxy for the CLV. This score can be a cost-effective initial Customer value ranking. In certain cases even a recency score may be a complex start. Frequency and/or monetary scores may be more suitable as a starting point.
The use of a Customer value ranking is only a means to the efficient use of business resources (value-based management). The accurate estimation of the Customer Lifetime value may be not only very difficult but also of limited business value.
C
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