Customer Lifetime Revenue

Customer lifetime revenue is the total amount of revenue that a customer is likely to get in for the company. Most of the time, this metric is computed over an agreed period of time in order to take marketing decisions during this period. The simple concept of customer lifetime revenue takes into consideration the product category that is being studied. While this computation can be done easily in the case of a retail outlet where purchase occurs across categories, other businesses that are looking at customer lifetime revenue should also consider the aspect of cross product purchases. This refers to the probability of the customer purchasing your brand for another category. The cannibalization aspect should also be kept in mind since some of the categories that the company many have may overlap in terms of the need that they satisfy.

The computation of the customer lifetime revenue is relatively easy if you are only considering the amount of direct revenue that the client will get in for a specific product category. The calculation involves looking at the average purchase amount and the purchase frequency in a year in addition to the agreed number of years. The computation therefore shall be:

Customer lifetime revenue – average purchase amount x purchase frequency in a year x number of years customer is expected to stay in the category

On the other hand if you want to calculate customer lifetime revenue for the business across categories, you will need to add in estimated values of cross category purchases. It is also important to keep in mind that if your product has serviced the customer well, there is a likely chance that the estimated volume of purchase per cycle and therefore the estimated average amount per purchase occasion increases over time. However, this is something that also depends on the category in question. The number of sanitary pads that a woman purchases in a month is not likely to increase just because she is satisfied with the product. However, the share of wallet on some multi brand categories is likely to increase over time with higher levels of customer satisfaction.

Customer lifetime value can be calculated for each year. This can help a business in arriving at the starting point of the marketing budget; something that is done in an arbitrary manner in many cases. Once the aggregated lifetime value of the customers is known the marketing budgets can be arrived at by looking at the return on investment that one expects. Obviously the calculations need to take into account the manufacturing costs, logistic costs, packaging costs and other variable and fixed costs as well.

To see our list of customer analysis examples and the top 10 customer metrics businesses should track visit our Customer Analysis Examples page.