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Customer Lifetime Value - Going crazy!

Discussion in 'General Marketing' started by Devileyezz, Apr 30, 2014.

  1. #1
    Hello,

    I'm struggling to figure out the CLV of clients in the lending industry.
    For example, client gives out loans in varied amounts in varied terms (6m,12m,3y,5y, etc) with interest rates.

    So for example (to keep the math simple), if the client gets $100,000 loan. And the interest rate is 5% for a period of 12 months, it becomes $160,000 that he needs to pay back.
    $160,000 / 12 = $13,333.33 is going to be the monthly payment.

    Two scenarios from here:
    1) He pays back, and goes home
    2) He pays back, and renews the loan (receives an additional $100,000 after expiration of first loan)
    3) While he's paying, he asks for another loan and his remaining payments get re-structured.

    There's also the case of business loans, etc.
    CLV is easy to figure out with tangible products, but this is turning into a nightmare.
    Please help!
     
    Devileyezz, Apr 30, 2014 IP
  2. jrbiz

    jrbiz Prominent Member

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    #2
    In order to calculate the potential LTV for any product or service, it would be good to have a handle on the history of the selling company in the marketplace. In effect, you need to know what the average LTV for customers has been for the company historically. If there is no company history (a start-up, e.g.) you will have to make assumptions as to the size of the initial purchase, how many recurring purchases will likely occur, etc. It would be good for someone with experience in the industry to weigh in on this matter, if at all possible, at a minimum.

    But note, without an historical analysis to rely on, it is all just supposition, much like when forecasting sales for a new company that has not made any sales before. You can make your best educated guess and still be way off. If the purpose is to attract investors, you will need to show that you have made reasonable assumptions throughout the process and be clear as to why they are "reasonable." If the purpose is to run or plan your business, you should recognize how little you can rely on such estimates and plan accordingly to be wrong by quite a bit in a worst case scenario.

    For what purpose are you doing this exercise?
     
    jrbiz, May 1, 2014 IP
  3. Devileyezz

    Devileyezz Member

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    #3
    Thanks jrbiz; very kind of you to respond to me in such depth. Quite appreciated!

    You're right. Historical data is important - unfortunately this is a business that has heavily relied on paper. But there are a couple people in the company who have some decent amount of understanding about the numbers in their company. This is why going with the existing data on hand, the data in their mind that I will extract, and a CLV formula - there may be an estimate we can come up with.

    I'm part of a startup that does marketing in Asia. Most companies don't know what CLV is, and we want to open their eyes to that and show them that our efforts will actually increase their CLV (many ways, but mainly through lead nurturing programs btw).
     
    Devileyezz, May 1, 2014 IP
  4. BoostSoftware

    BoostSoftware Active Member

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    #4
    You have to find a way to make your products unique. You also have to build trust among the people seeking financing. I guess that's probably why a lot of companies don't mind reaching out to people with bad credit.
     
    BoostSoftware, May 2, 2014 IP
  5. Devileyezz

    Devileyezz Member

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    #5
    Thanks Erin, but I'm wondering of boosting CLV and it's formula... not the business operation of it. :)

     
    Devileyezz, May 5, 2014 IP
  6. jrbiz

    jrbiz Prominent Member

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    #6
    While most of your customers may not think in terms of Customer Lifetime Value, don't they recognize that there is repeat business from existing clients and that said repeat business is the most profitable type of business a company can get? I can understand needing to have analysis/discussion as to what the CLV might be for them (by the way, I have always seen this to be abbreviated as LTV (Life Time Value) here in the U.S., not CLV.) But they should immediately understand the concept, no?
     
    jrbiz, May 5, 2014 IP
  7. Devileyezz

    Devileyezz Member

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    #7
    Haha if only that were easier said than done. The most simplest of concepts are hard to explain in Asia unfortunately. For example, traditional marketing for them currently costs a lot without any guaranteed RoI. But when we offer them ways (and suggestions like buying targeted leads) that will help them realize higher conversion ratios just by actually having a target market, it goes to deaf ears. :)

    Yeah, I've seen it as LTV but there's also occurrences as CLV and so I go with CLV because it lets us know that the context it is used in is for customers, not age, haha

     
    Devileyezz, May 5, 2014 IP