Business Improvement and Social media

Many marketers persist in subtracting acquisition costs before reporting CLV, which results in several ongoing problems. The majority of marketers we surveyed thought that customers with the same value going forward had the same CLV. However, this is not true when acquisition costs are subtracted from CLV before CLV is reported. A highly profitable customer can appear to have the same value as a less profitable customer if the highly profitable customer cost more to acquire.

Most marketers we surveyed also thought that you could calculate the financial value of a company’s customers by adding up the individual CLVs. However, this is not true if acquisition costs are subtracted before reporting CLV. When subtracting acquisition costs before reporting CLV, you do not report the current value of the company’s customers but their value less acquisition cost. To see why this matters, it helps to draw a parallel with other (noncustomer) company assets. Imagine that a company is selling an old machine. In this scenario, the company’s managers would expect to receive the machine’s current value, not the current value less what the company paid to buy the machine when new.

Via Marteq