Design and analysis of business-driven modeli...

Design and analysis of business-driven modeling using customer lifetime value

Author Name : Anirudh Kaushik

ABSTRACT

The importance of client value cannot be overstated in any business endeavor. The discounted worth of future revenues that a client generates for the firm is known as the customer lifetime value (CLV). A customer's lifetime value (CLV) may be calculated by predicting how many transactions they will conduct in the future and how much money they will earn on each transaction. A customer's future transaction volume may be projected using the Pareto/NBD model, and the customer lifetime value (CLV) is then calculated as a discounted product of that volume and the estimated profit per transaction. It's common to estimate both the total number of transactions and the potential earnings from each transaction individually. An alternative is proposed in this paper. We demonstrate that the relationship between the number of transactions and their profitability may be utilized to improve the accuracy of the CLV forecast.

Keywords: statistical analysis, customer lifetime value, Pareto/NBD model, gamma-gamma submodel