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2015•Maandblad Voor Accountancy en BedrijfseconomieOpen access

Customer Profitability Analyses and Customer Lifetime Value

Ashok Sridhar, Michael Corbey

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Abstract

The main objective of this paper is to compare two key approaches in the !eld of Customer Accounting (CA), namely Customer Pro!tability Analysis (CPA) and Customer Lifetime Value (CLV). While CPA is a retrospective analysis of past accruals that represent the results of doing business with a customer over a certain, mostly single-period of time, CLV is a predictive measure of future customer-related cash "ows over a certain (multi-)period of time. This paper draws on the state-ofthe- art knowledge in the Customer Accounting (CA) literature to identify the impacts of CPA and CLV on managerial decision-making. It also offers recommendations as to the scenarios in which these metrics should be deployed in order to arrive at meaningful managerial decisions, and highlights their collective limitations.

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What this paper is about

The main objective of this paper is to compare two key approaches in the !eld of Customer Accounting (CA), namely Customer Pro!tability Analysis (CPA) and Customer Lifetime Value (CLV). While CPA is a retrospective analysis of past accruals that represent the results of doing business with a customer over a certain, mostly single-period of time, CLV is a predictive measure of future customer-related cash "ows over a certain (multi-)period of time. This paper draws on the state-ofthe- art knowledge in the Customer Accounting (CA) literature to identify the impacts of CPA and CLV on managerial decision-making. It also offers recommendations as to the scenarios in which these metrics should be deployed in order to arrive at meaningful managerial decisions, and highlights their collective limitations.

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Available abstract

The main objective of this paper is to compare two key approaches in the !eld of Customer Accounting (CA), namely Customer Pro!tability Analysis (CPA) and Customer Lifetime Value (CLV). While CPA is a retrospective analysis of past accruals that represent the results of doing business with a customer over a certain, mostly single-period of time, CLV is a predictive measure of future customer-related cash "ows over a certain (multi-)period of time. This paper draws on the state-ofthe- art knowledge in the Customer Accounting (CA) literature to identify the impacts of CPA and CLV on managerial decision-making. It also offers recommendations as to the scenarios in which these metrics should be deployed in order to arrive at meaningful managerial decisions, and highlights their collective limitations.

Key concepts: Customer lifetime value, Customer profitability, Customer equity, Customer intelligence, Customer advocacy, Profitability index, Customer retention, Customer to customer

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