Two Approaches to Customer Lifetime Value CLV

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In the 1990s, Frederick Reichheld developed a model for assessing a customer's lifetime value. This model is based on the idea that there are two approaches to CLV: The first approach is to calculate CLV by dividing the profit from a customer by the cost of acquiring that customer. The second approach is to calculate CLV by dividing the profit from an average customer by the cost of acquiring an average customer.

Reichheld found that both these approaches have their pros and cons, but in general, companies should use the first approach because it takes into account all costs associated with customers and rewards customers who are more profitable in terms of revenue or profit.

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