I feel confused because I need to determine the lifetime value of our customers, but there are so many approaches. I know that the average order amount per customer is $75, number of purchases per year is 1 with the interval of three years. Approximate gross profit is 30%. How can I calculate the customer lifetime value?
Thank you very much.
Not a small task!You will only get a decent model out of this with a lot of careful planning etc, so some things to consider:
1) is your model going to be fully costed? (It's usually easier to get the revenue side sorted than the expense). If not, will anyone care (eg will finance buy into the model if its numbers won't reconcile to the GL?)
2) what, for you, is the difference between value & profit.
3) What definition of profit are you going to use? There are good reasons why, eg 'economic profit' - with hurdle rates etc - is probably the wrong one to use, but could you tell someone why?
4) What's the definition of "lifetime value" - many people think they know what this means in general, but to build a model you've got to define it precisely as it relates to your data. Have you done this?