Critical Aspects in the Valuation of the Customer Base by CLV -Lifetime Value-

VOL. 0002 – FLORIDA, MONDAY, AUG 12, 2022

Juan F. Arjona Harry

President & CEO Strategee Group

Knowing the value in money of the company's customer base is absolutely necessary for the deployment of perfectly segmented marketing strategies that, with the right investment per customer, can be effective.

The value of the customer base will depend on multiple variables that, brought together in a predictive algorithm, can estimate in money how much each customer is really worth today and over time; and, naturally, how much investment could be allocated for its maintenance and retention.

There are multiple variables that can be part of each algorithm [remember that each business case is an individual and independent case in terms of the design of its algorithm, since its business cycle, category and accumulation periods are different]. Within these multiple variables, we will see below the ones that are absolutely critical to finding your CLV :

1. Sales: and for them, the period of time considered as the analysis window.

2. Payment term: considering the ages of the portfolio and the percentage of delinquency and lost portfolio.

3. Gross and Operational Margin by Channel : to locate the flow of income according to the channels chosen to transact the clients.

4. Administrative and sales expenses platform : considering the base of fixed, semi-fixed and variables that make up this annual item.

5. Rate of returns : considering each channel independently.

6. Payment method: taking all payment methods and forms of payment (physical and digital).

7. Level of affiliation with the brand : participation in networks and power of influence in them.

8. Age : date of birth as a time variable.

9. In special categories, gender : as a segmentation and validity variable within the category.

10. Major demographics :

10.1. place of residence

10.2. Socioeconomic.

10.3. Income level.

10.4. Indebtedness level.

10.5. FICO-Credit Score.

10.6. Marital status.

10.7. Number of inhabitants in your dwelling.

10.8. Educational level reached.

11. Recency – As the most recent purchase in the category and on the brand.

12. Frequency : thought of as the repetition of consumption under similar conditions.

13. Category consumption rate : as an expansion variable.

14. Brand consumption rate . as a loyalty variable.

15. Time window : for the standard analysis - results with a result between 87.5% and 94.99% predictability - it should be five years. For analyzes with a predictability percentage greater than 95% , it must be 10 years.

The above variables are required to be able to know -as a result of an algorithm that executes them-, each of the following questions :

How much should the investment rate per segment be?

How much should the investment per client be?

How much is your customer base worth?

What is the size of the customer segments or classes?

What is the value of each segment and the value of each customer?

How much is the ROI per client?

What is the ROI per segment?

What will be the future value of the customer base in a given period of time?

What is the customer base churn rate?

Through the application of advanced modeled mathematics and with the help of a robust software platform, Strategee develops algorithms for several of our clients, obtaining the above information outputs that answer precise questions around the CLV .