Customer Long-term Value (CLTV)

Based on your order history, customer long-term value (CLTV) will help you to estimate the cash flows you will get from customers and estimate how long you can keep them after the acquisition. It will also allow you to better understand your customers life cycle, identify periods of high churn risk, and gives you an estimation of the profits generated by your customers over an extended time period.

Customer Long-term Value (CLTV) :

Customer Lifetime Value (CLV) can be defined as the present value of the future cash flows attributed to the relationship between a customer and the company.

Here, the implemented model is the General Retention Model (GRM), this model as the simple retention model, is suitable for customers in a contractual situation.

The simple retention model (SRM) assumes that the retention rate is constant over time. But in many cases, retention rates are not always constant. The general retention model (GRM) extend the SRM by allowing retention rates rr to vary over time and cash flows mm to depend on the time of cancelation.

Using general retention model (GRM) to compute CLTV :

To implement this model, we will use methods related to survival analysis, more specifically the life table analysis.

Options of Customer Long-Term Value function in XLSTAT

Segments labels: Select the segments labels. This field is only available when the segments option is enabled and at least one of the following options is enabled: discount rate, fixed costs or user defined retention rate.

Discount rate: Activate this option if you want to take into account the discount rate applied to customers. This rate is considered fixed. If the segments option is enabled, select one value per segment and make sure that the lines are in the same order as segments labels.

Fixed costs: Activate this option if you want to deduct certain fixed operating costs from the revenues generated when calculating CLV. Select multiple columns if you have multiple costs to include. If the segments option is enabled, select one value per segment and make sure that the lines are in the same order as segments labels.

Payment:

• Start of period: Select this option if payments occur at the beginning of each period.

• End of period: Select this option if payments occur at the end of each period.

Results of Customer Long-Term Value function in XLSTAT

CLV: Activate this option to display the average CLV. If the segments option is enabled, this value is displayed for each segment.

Customer Lifetime Analysis: Activate this option to display the customers life cycle analysis tab. If the segment option is enabled, these values are displayed for each segment. You can choose between two options:

• Summary : Activate this option if you want to display a resume of your customers life cycle.

• Full : Activate this option if you want to display deeper results on your customers life cycle.

Customer long-term value (CLTV) evolution: Activate this option to display, for each period the CLV and the CLTV, which here correspond to the cumulative CLV up to the relevant period.

Segment comparison: If the segments option is enabled, activate this option to perform a comparison of the cumulative retention functions of the segments.

Retention function: Activate this option to display the chart showing the evolution of the cumulative retention function over time.

Probability density: Activate this option to display the chart showing the variation of the probability density as a function of time.

Hazard rate: Activate this option to display the chart showing the hazard rate as a function of time.