Appendix A. ESTIMATING CUSTOMER LIFETIME VALUE (CLV)
In this appendix, we provide the mathematical details for estimating CLV under various assumptions discussed in Chapter 2.
CLV WITH CONSTANT MARGIN, CONSTANT RETENTION, AND INFINITE TIME HORIZON
In our simple model, we assume that profits or margins for a customer remain constant over his or her tenure with the firm. Studies in this area report conflicting evidence—some studies support an increase in margins over time, while others show no significant impact of the duration of tenure on margin. We also assume that retention rates remain constant over time. Although defection patterns for a cohort may show a systematic change over time, several landmark studies show that these changes may reflect ...
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