Current value, historical value, present value, lifetime value….

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One of the more interesting aspects of customer value measurement – the precedent to customer value management – is that it can have so many different temporal definitions. There is a vast difference between each of these terms:

  • customer current value
  • customer historical value
  • customer present value
  • customer lifetime value

 and even within those terms there are variants in meaning. For example current value may mean last week | month | year or it may mean the value of the customer’s current business over the next week | month | year.

Getting basic definitions right is crucial to successful acceptance of your customer value measurement techniques. Each of the value metrics identified above has validity – there is no one right answer or single version of the truth that everyone seeks. The reality of customer value measurement is that the techniques and policies used to define the metric must be tailored to the decisions that are to be based on this information.

For pricing decisions one set of definitions might be ideal, while for customer retention strategy another might be more applicable. You need to get the relationship between definitions and decisions right if you want to encourage the right behaviour…and that is what it is really all about.

-DBM

Republished with author's permission from original post.

David McNab, CPA, CA
A senior level strategist, innovator and change agent, Dave has deep experience in customer intelligence and business intelligence strategy, with over 25 years of Financial Services management and Consulting experience in North America, South America, Middle East, Japan and UK. He has worked as a Consulting SME with IBM, Teradata and PwC (Coopers) and has run an independent practice for over 15 years.

2 COMMENTS

  1. Current value is a measurement of the profit generated in the current period… ie. this month, this year.

    Present value includes future cash flows, discounted to the present, i.e. NPV – which requires predictive modeling of future flows to account for new business, lost business and changes in business in the future of the relationship.

    I trust this helps – Dave.

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