Customer lifetime value $($CLV$)$ is essential for almost any customer experience $($CX$)$ program. It helps

you to understand how profitable $($or not!$)$ a particular customer or customer segment is over their

entire relationship with your brand.

We all know the old adageretaining an existing customer costs less than retaining a new one. While

theres nothing wrong with that, its littered with nuancewhat about the existing customers who cost

you more to serve than they contribute to revenue? Which customers or segments are worth investing

more in$?$

CLV is how you answer those questions. It shows how much a customer is worth to you over the lifetime

of their relationship with the company, and its a useful CX metric because its directly tied to the

bottom line.

How do you calculate customer lifetime value $($CLV$)?$

Example for your assignment:

Your company wants you to create a model for calculating Customer Lifetime Value for a cohort.

Create a model in Excel that will calculate a $10-$year CLV based on the following:

$1.$ Cost of acquisition is $$100,000$

$2.$ You start by acquiring $10,000$ Customers

$3.$ The profit margin per customer is constant at $$150/$year

$4.$ The discount rate is $10\%$

$5.$ Retention rate is $90\%$

Answer the following questions:

$1.$ Based on the above information, what is the CLV of the cohort?

$2.$ Show your calculations in Excel

One of the managers is very impressed with your model. They have been asked to budget a constant

amount that should be spent annually on improve your retention rate to $95\%$

$3.$ What amount would you advise the manager is the maximum that should be spent each

year?