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Calculating
Retention Equity
The profits generated during the retention
phase of the customer-firm relationship are what we call a
firm's retention Customer
Equity™. Some
firms use the term "lifetime value of a customer" to describe
these retention profits, but that terminology can be problematic,
because other firms include acquisition profit or loss in
their concept of customer lifetime value. To avoid confusion
and to distinguish between acquisition profitability (or loss)
and retention profitability (or loss), we use the term retention
equity. To compute retention Customer
Equity™, we will
use three methodologies. The first method uses average retention
rate, margin, and cost data. This method is appropriate if
these data do not change dramatically over time. However a
more sophisticated method called "survival modeling" is better
if there are large variations in these data over time.
Profit
Impact of A Retained Customer - An Example
Using Average Retention,
Margin, and Cost Data to Compute Retention Equity
Retention
Equity Example Using Survival Analysis
Retention Equity
Example Using RFM Analysis
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