Neflix

CUSTOMER LIFETIME VALUE

As Don Peppers and Martha Rogers are fond of saying, “Some customers are more equal

than others.”1 One way to examine these differences is through customer profit (CP), the

difference between the revenues and the costs associated with the customer relationship during a

specified period. The central difference between CP and customer lifetime value (CLV) is that

CP measures the past and CLV looks forward. As such, CLV can be more useful in shaping

managers’ decisions but is much more difficult to quantify. Quantifying CP is a matter of

carefully reporting and summarizing the results of past activity, whereas quantifying CLV

involves forecasting future activity.

Customer Lifetime Value: The Present Value of the Future Cash Flows Attributed to the

Customer Relationship

Don Peppers and Martha Rogers, Enterprise One to One: Tools for Competing in the Interactive Age (New

York: Currency Doubleday, 1997): 31.

This technical note was prepared by Phillip E. Pfeifer, Richard S. Reynolds Professor of Business Administration,

and Paul W. Farris, Landmark Communications Professor of Business Administration, with the assistance of Neil

Bendle (MBA ’04). It is an excerpt from the more comprehensive treatment of customer metrics found in “Customer

Profitability” (UVA-M-0718). Copyright © 2011 by the University of Virginia Darden School Foundation,

Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com.

No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in

any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission

of the Darden School Foundation.

This document is authorized for educator review use only by Jose Diaz, Universidad Del Pacifico until February 2016. Copying or posting is an infringement of copyright....