Customer lifetime value (CLV) is a key metric for understanding how to best invest your resources. It measures the net present value of all future revenues from a customer, plus any additional profits associated with those revenues such as operating expenses or investment returns. But to understand what customer lifetime value is and how to calculate it, you first need to understand the different types of CLV models. In this article you’ll be introduced to three important CLV models that will help you make better decisions:
The discounted cash flow method
The discounted cash flow method (DCF) is a framework for calculating the present value of an investment based on its projected future cash flows and the cost of capital. The discount rate, also known as the required rate of return or cost of equity, is determined by weighing all relevant factors such as industry risk and general market conditions. …