4/4/2000
How do you measure the value of a customer or group of customers to a company? This downloadable interactive workbook, one of several workbooks/tutorials from the HBS Toolkit used by Harvard Business School students, is designed to help estimate the cost of acquiring a customer and the Net Present Value (NPV) of that customer's business during his or her economic life.
The HBS Toolkit Lifetime Customer Value Calculator tool is designed to let the user estimate the cost of acquiring a customer and the Net Present Value (NPV) of that customer's business during his useful economic life. Two models are offered—a simple one that looks at a single product and somewhat simplified assumptions, and a more complex model that allows the user to examine multiple products with distinct customer loyalty and repurchase characteristics.
The models assume that customer acquisition is done through a spending program that could include advertisements, special discount coupons or giving out of free samples. The user must make some assumptions about how much it costs the company to reach each potential customer as well as what percentage of customers reached will make an initial purchase. If there are additional costs (such as a rebate) that only apply to actual customers, those are also calculated. This provides a total cost per acquired customer.