During the last decade, lifetime value (LTV) has become the standard method for measuring the success of customer marketing programs. Return on investment is used for campaigns, and profitability is used, particularly in banks, to take a snap shot of the performance of existing customers.

Lifetime value, unlike these other measurements, predicts the future performance of a group of customers, based on their past and current spending behavior. It’s the net present value (NPV) of the future profits to be received from a given number of newly acquired or existing customers during a given period of years.

In this article Arthur Middleton uses a great example of a retailer to explain the principles involved.