Diving deeper into CLV

CLV is the net present value of the future cash flows from a customer. It is used to estimate the value of a customer over the entire relationship with a company. One needs to realize that not all customers are equally profitable. The idea behind CLV is fairly intuitive. Once you acquire a customer, you will earn some revenue from services sold to that customer. You will also spend some money on that customer – for example, on marketing, advertising, customer service, and so on. The difference between the revenue and the costs is the profit. The profit is the cash flow from that customer. The CLV is the net present value of all the future cash flows from that customer. Quantifying the CLV can be challenging because you will need to forecast the stream of cash flows generated by the customer over its entire lifetime. This is a difficult task because you will need to make assumptions about the future. You will need to make assumptions about the future revenue...