A Donors - this is the number of initial donors. It declines each year dependent on the retention rate (row B).
B Retention rate - in lifetime value modelling it is usually found to increase year-on-year, since customers who stay loyal are more likely to remain loyal.
C Donations per annum - likewise, the charity finds that the average contributions per year increase through time within this group of customers.
D Total donations - calculated through multiplying rows B and C.
E Net profit (at 20% margin) - LTV modelling is based on profit contributed by this group of customers, row D is multiplied by 0.2.
F Discount rate - since the value of money held at a point in time will decrease due to inflation, a discount rate is applied to calculate the value of future returns in terms of current day value.
G NPV contribution - this is the profitability after taking the discount factor into account to give net present value in future years. This is calculated by multiplying row E by row F. H Cumulative NPV contribution - this adds the previous year's NPV for each year. I Lifetime value at net present value - this is a value per customer calculated by dividing row H by the initial number of donors in Year 1.
Based on preliminary tests with improved targeting, it is estimated that with the new system retention rates will increase from 50% to 51% in the first year, increasing by 5% per year as currently. It is estimated that in Year 1 donations per annum will increase from £100 per annum to £102 per annum, increasing by £20 per year as currently.
Using the example of the lifetime value for the current donor base with the current system, calculate the LTV with the new system.
Sense, respond, adjust - delivering relevant e-communications through monitoring customer behaviour
To be able to identify customers in the categories of value, growth, responsiveness or defection risk we need to characterise them using information about them which indicates their purchase and campaign-response behaviour. This is because the past and current actual behaviour is often the best predictor of future behaviour. We can then seek to influence this future behaviour.
Digital marketing enables marketers to create a cycle of:
• Monitoring customer actions or behaviours and then ...
• Reacting with appropriate messages and offers to encourage desired behaviours
• Monitoring response to these messages and continuing with additional communications and monitoring.
Or if you prefer, simply:
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