On the customer lifetime value: a mathematical perspective

The customer lifetime value (CLV) is an important concept increasingly considered in the field of general marketing and in the management of firms, of organizations to increase the captured profitability. It represents the total value that a customer produces during his or her lifetime, or better represents the measure of the potential profit generating by a customer. The companies use the customer lifetime value to segment customers, analyze probability of churn, allocate resources or formulate strategies and, therefore, they increasingly derive revenue from the creation and from sustenance of long-term relationships with their customers. For this reason, the customer lifetime value is increasingly considered a touchstone for the management of customer relationships. In this article, the authors deepen the concept and use of customer lifetime value and present some mathematical models for its determination. There is many models for this purpose but most of them are theoretic, complex and not applicable. Though not exhaustive, the major contribution of this paper is that it provides a general mathematical formulation to estimate the CLV and that it has a context less specific compared to papers, present in literature, on the customer lifetime.