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  • October 2014 (Revised November 2016)
  • Technical Note
  • HBS Case Collection

Customer Lifetime Value (CLV) vs. Customer Lifetime Return on Investment (CLROI)

By: Elie Ofek
  • Format:Print
  • | Language:English
  • | Pages:12
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Abstract

This note presents two related measures for assessing the financial value of a customer to the firm. The first is the well-known measure of Customer Lifetime Value, or CLV for short. The second, which has received much less attention, treats the acquisition of a customer as a financial investment that has a quantifiable return based on future profit streams. Accordingly, we term this latter measure Customer Lifetime Return on Investment, or CLROI for short, and explain how it is calculated. We further show how employing CLROI can yield wildly different marketing implications relative to CLV (despite the strong link between them), particularly for targeting decisions. The note provides multiple examples to illustrate the concepts and also introduces formal characterizations of the two measures. The relevance of segment sizes, customer dynamics, social network influences, and strategic considerations are discussed.

Keywords

Customer Lifetime Value; Return On Investment; Segmentation; Social Networks; Customer Relationship Management; Marketing Strategy; Investment Return; Social and Collaborative Networks; Social Media

Citation

Ofek, Elie. "Customer Lifetime Value (CLV) vs. Customer Lifetime Return on Investment (CLROI)." Harvard Business School Technical Note 515-049, October 2014. (Revised November 2016.)
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About The Author

Elie Ofek

Marketing
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Related Work

    • October 2014 (Revised November 2016)
    • Faculty Research

    Customer Lifetime Value (CLV) vs. Customer Lifetime Return on Investment (CLROI)

    By: Elie Ofek
Related Work
  • Customer Lifetime Value (CLV) vs. Customer Lifetime Return on Investment (CLROI) By: Elie Ofek
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