Customer Lifetime Value (CLV) is one of the cornerstone principles of business & marketing. At its simplest level, the value of a customer over his or her lifetime net of any acquisition costs should be positive.

However, in practice, the concept gets tricky. Here are some resources on some of the best writing. links, spreadsheets & images on customer lifetime value. Please feel free to add your own.

  1. The Dangerous Seduction of the Lifetime Value LTV Formula by Bill Gurley
    Bill Gurley, a VC at Benchmark Capital penned this masterpiece of the dangers of the CLV and its problems. He outlines the formula here:
    Bill Points out how the variables in the formula are inter-related among the 10 other observations on the formula:This may be the single most important issue and it lies at the heart of why the LTV model eventually breaks down and fails to scale ad infinitum. Tren Griffin, a close friend that has worked for both Craig McCaw and Bill Gates refers to the five variables of the LTV formula as the five horsemen. What he envisions is that a rope connects them all, and they are all facing different directions. When one horse pulls one way, it makes it more difficult for the other horse to go his direction.
  2. Corelation between the Cost of Customer Acquisition & Life Time Value
    David Skok, a VC at Matrix Partners goes into lots of detail on how the cost of customer acquisition impacts your life time value.

  3. Spreadsheet Metrics on Customer Lifetime Value Freemium Business
    Andrew Chen, a start up focused analyst goes into great detail & a spreadsheet on CLV.The post talks about various internet channels for acquiring customers and resulting lifetime values.
  4. Infographic on Calculating Customer Life Time Value for ECommerce Companies

    KissMetrics created this Infographic on calculating Customer Lifetime Value

    While the illustrations are interesting, Bill Gurley has pointed to some flaws in their illustrations including this comment:
    As an example of the sloppiness that exists around the formula, consider this blog post from KISS metrics, a company whose aim is to “help you make smarter business decisions.” Not only do they include a version of the model that specifically ignores future costs, but also they recommend taking an average of three different results, two of which are clearly flawed. This voodoo-math has no place as part of a multi-million dollar marketing exercise. 

  5. Harvard Business School Spreadsheet on CLV
  6. UCLA Professors on Modelling Customer Lifetime Value
  7. The Two most Crucial Equations in Business
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