|
Profit
From Retained Customers, Current Year
This measure calculates the current-year’s profits for all
retained customers in all cohorts.
| Computation
and Measure: |
 |
For
each retained-customer cohort, subtract incremental costs
from the gross dollar margin, multiply by the cohort’s
survival rate for the current period, and sum across all
customer cohorts.
Mathematically this becomes:
|
Profit
from Retained Customers, Current Year (year t)
=
|
|
where:
Ni
= the number of prospects targeted
t-i periods ago,
rt-1-i = the fraction
of customers acquired i periods ago that remain at the
end of time t-1 (i.e., the survival rate at time t-1-i
)
rt,i
= the retention
rate at time t for customers acquired i periods ago;
mt,i
= the per-customer
margin at time t for customers acquired i periods ago;
cr,t,i
= the marketing
and customer service costs associated with retaining a
customer, acquired i periods ago, during the current period
t.
Based
on this mathematical formula it is assumed that the revenues
are not received until the end of the period but all of
the customers active at the beginning of the period contribute
to the costs. |
| Example: |
| |
Table
Balance-2 shows an example of the computation. The
computations in this table are based on the number of
customers in Table
Retention-2. Recall
that these forecasts about the number of customers were
derived from the survival curve in Table
Retention-1. Alto
note that the profit numbers are actual, not expected.
We calculate current Customer
Equity™
separately from future Customer
Equity™
because future customer equity is a projected value.
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