The customer lifetime value calculation (step-by-step)

Teaching Notes for this Marketing Activity

Preferred format: This teaching activity should be run in student pairs or small groups.
Student audience: This discussion exercise is more suitable for advanced students studying services marketing or marketing metrics.
Exercise time: This activity will probably run around 10-15 minutes.
Additional resources: Please refer to the comprehensive guide to customer lifetime value website.
Notes: There are two other activities on this site: one provides a simple introduction to the customer lifetime value formula and the other gets students to interpret its outcomes.

Student Task

For this exercise, you will work through a complete calculation of customer lifetime value, which is provided over a ten-year period with all information clearly provided. Your task is to essentially explain the mechanics of the calculation.

The following diagram can be enlarged by clicking, and it provides a ten-year view of customer lifetime value, with the final key number listed in the bottom in yellow.

Fully worked calculation of customer lifetime value
Click to enlarge if required

Discussion questions

  1. Work through each line of the calculation and take turns in your group to explain what is happening in each row.
  2. Once this is completed, work through the mechanics of the calculation and discuss why each row is necessary.
  3. What options with this particular situation have in order to improve final customer lifetime value (that is, what numbers could increase or decrease) to increase the final value?