Relationship value of a customer is a concept or calculation that looks at customers from the point of view of their lifetime revenue and profitability contributions to a company.This type of calculation is needed when companies start thinking of building long-term relationships with their customers.
Factors That Influence Relationship Value:
The Lifetime or relationship value of a customer is influenced by the length of an average "Lifetime" the average revenues generated per relevant time period over the lifetime,sales of additional products and services over time,referrals generated by the customer over time,and costs associated with serving the customer.
Estimating Customer Lifetime Value:
If companies knew how much it really costs to lose a customer,they would be able to accurately evaluate investments designed to retain customers.One way of documenting the dollar value of loyal customers is to estimate the increased value or profits that accrue for each additional customer who remains loyal to the company rather than defecting to the competition.
Linking Customer Relationship Value to Firm Value:
The emphasis on estimating the relationship value of customers has increased substantially in the past decade.Part of this emphasis has resulted from an increased appreciation of the economic benefits that firms accrue with the retention of loyal customers.
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