The note provides two yardsticks to gauge a customer financial value to the firm. First one is the tool which is widely known is Customer Lifetime Value (CLV), while the second, which did not gain much attention, defines the customer as a financial investment that has a quantifiable return based on future profit streams and is known as Customer Lifetime Return on Investment (CLROI).
The note defines the method to calculate the CLROI and its importance that can produce multiple marketing implications relative to CLV, although they are strongly integrated with each other, specifically to target the decision.
This note presents various examples to explore the concepts and also provides the formal characterization of both tools. It also discusses the relevance of strategic considerations, the impact of social network, customer dynamics, and segment sizes.
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