This is a measure of the financial worth to the organization of a retained customer. Measuring the lifetime value of a customer requires an estimation of the likely cash flow to be provided by that customer over their customer lifetime. That is to say, if a typical account lasts for ten years, the net present value of the profits that would flow from that customer over ten years will need to be calculated. There is a direct linkage between the customer retention rate and the average duration of a customer relationship. Increasing the retention rate of customers will have impact on profitability, as well as what the effect of extending the customer lifetime by a given amount will be. This information provides a good basis for marketing investment decision making; in other words, how much is it worth spending, either to improve the customer retention rate or to extend the life of a customer relationship? For this understanding, measuring and managing customer loyalty is very important.
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