Tools › Finance and Business › Marketing › Cohort Retention and CLV › Example
Gupta, Lehmann and Stuart 2004 Table 1: customer lifetime value as a margin multiple
| Tool | Cohort Retention and CLV |
| Source | Gupta, S., Lehmann, D. R., and Stuart, J. A. (2004). "Valuing Customers." Journal of Marketing Research, Vol. 41, No. 1, pp. 7–18. Table 1. |
| Level | Undergraduate |
Problem
With a constant retention rate r and discount rate d, the lifetime value of a customer is the margin times r/(1 + d − r). Tabulate the multiple for retention rates of 60 to 90 % and discount rates of 8 to 16 %.
Inputs to Enter
- Simple CLV formula group: retention rate 90 %, discount rate 12 % (and the other table cells)
Answers
- r = 0.9, d = 12 %: multiple 4.09; r = 0.6, d = 8 %: 1.25; r = 0.7, d = 10 %: 1.75
- The multiple equals the geometric DEL minus one; it is infinite when r ≥ 1 + d
Notes
Set the retention rate and the discount rate in the constant-retention group; the rest of the page can be left at its defaults.