Customer Life Time Value and dogs!!

Increasingly businesses are recognizing the importance of customer profitability, not just in the present but over their lifetimes. Businesses that can do so accurately - (CLTV = NPV ((Sum (Revenue - Cost) * Retention Rate) - Acquisition Costs)) will be in an advantageous position in terms of their ability to take informed decisions as opposed to shooting in the dark or based on hunches/ intuition etc.

Of course the key is in determining what the future revenues will be and the farther the time horizon, the greater the uncertainity. Sensitivity analysis can of course help but questions of accuracy will remain. So if you have a 23 year old graduate who is going to apply for a mortgage to a bank, how accurately can you predict her LTV assuming she lives to be 80? Not easy.

What about dogs who live to be 10 - 15 years of age - Now that's pretty exciting since you might get pretty accurate results. So according to Prof Alok Chaudhury of Northwestern University, a firm in Chicago is doing just that - focusing on LTV of dogs to target their high potential clients.

A terrific example of using a tool in a realistic manner.