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Creating long-term loyalty relationships - Maximizing customer lifetime value

Q: What is a profitable customer?

A profitable customer is a person, household or company that over time yields a revenue stream exceeding by an acceptable amount of the company's cost stream for attracting , selling and serving that customer .

Q: Explain customer profitability analysis

Customer 1 is very profitable . He buys P1 and P2 which are both profit-making products. Customer 2 yields mixed profitability . He buys P1 (profitable) and P3 (unprofitable). Customer 3 is a losing customer . He buys P1 (proftable), but also P3 and P4 (both unprofitable). What can a company do about customer 2 and 3? Raise the price of its less profitable products or eliminate them. Try to sell customers 2 and 3 its profit making products .

Q: What is customer lifetime value (CLV)?

Customer lifetime value describes the net present value of the stream of future profits expected over the customer's lifetime purchases . The company must subtract from its expected revenues the expected costs of attracting , selling , and servicing the account of that customer, applying the appropriate discount rate.

5 important questions on Creating long-term loyalty relationships - Maximizing customer lifetime value

What does the well-known 80-20 rule state?

It states that 80 percent or more of the company's profits come from the top 20 percent of its customers.

What is a profitable customer?

A profitable customer is a person, household or company that over time yields a revenue stream exceeding by an acceptable amount of the company's cost stream for attracting, selling and serving that customer.

Explain customer profitability analysis

Customer 1 is very profitable. He buys P1 and P2 which are both profit-making products.
Customer 2 yields mixed profitability. He buys P1 (profitable) and P3 (unprofitable).
Customer 3 is a losing customer. He buys P1 (proftable), but also P3 and P4 (both unprofitable).

What can a company do about customer 2 and 3?

Raise the price of its less profitable products or eliminate them.
Try to sell customers 2 and 3 its profit making products.

CPA is best conducted with the tools of an accounting technique called ABC (activity-based costing)? What is abc?

ABC accounting tries to identify the real costs associated with serving each customer- the costs of products and services based on the resources they consume.

What is customer lifetime value (CLV)?

Customer lifetime value describes the net present value of the stream of future profits expected over the customer's lifetime purchases.
The company must subtract from its expected revenues the expected costs of attracting, selling, and servicing the account of that customer, applying the appropriate discount rate.