Sample interview questions: How do you assess and leverage customer lifetime value (CLV) or customer profitability in your business development strategies?
Sample answer:
Assessing and Calculating Customer Lifetime Value (CLTV)
1. Gather Historical Data:
- Track customer behavior, including purchase history, frequency, and average order value.
- Utilize customer relationship management (CRM) systems or business intelligence tools to store and analyze this data.
2. Discount Future Cash Flows:
- Estimate future customer revenue streams based on historical data and assumptions about repeat purchases and customer attrition.
- Discount these future cash flows back to the present using an appropriate discount rate to account for the time value of money.
3. Incorporate Customer Acquisition Cost:
- Factor in the cost of acquiring new customers, including marketing expenses and sales commissions.
- Deduct this cost from the discounted future cash flows to calculate the net CLV.
4. Estimate Customer Lifespan:
- Track customer activity over time to determine the average length of their customer relationship.
- Use statistical models or industry-specific data to make assumptions about customer attrition rates.
5. Consider Customer Value Drivers:
- Assess factors that influence customer behavior, such as product/service quality, customer service, and brand reputation. Read full answer
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