Issues in Computing Customer Lifetime Value

  • Robert C. Blattberg
  • Byung-Do Kim
  • Scott A. Neslin
Part of the International Series in Quantitative Marketing book series (ISQM, volume 18)


This chapter addresses the challenging details in computing LTV that are all-too-easy to ignore. We focus particularly on the appropriate discount rate and appropriate costs. We draw from standard corporate finance and the CAPM model to derive the appropriate discount rate.We discuss the application of activity based costing (ABC) in computing costs. We advocate that the only costs appropriate for LTV calculations are those that change as a function of the number of customers within the particular application at hand (i.e., variable costs). We conclude with a discussion of incorporating marketing response and customer externalities in LTV calculations.


Discount Rate Variable Cost Certainty Equivalent Customer Segment Online Banking 
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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  • Robert C. Blattberg
    • 1
    • 2
  • Byung-Do Kim
    • 3
  • Scott A. Neslin
    • 4
  1. 1.Kellogg School of ManagementNorthwestern UniversityEvanstonUSA
  2. 2.Tepper School of BusinessCarnegie-Mellon UniversityPittsburghUSA
  3. 3.Graduate School of BusinessSeoul National UniversitySeoulKorea
  4. 4.Tuck School of BusinessDartmouth CollegeHanoverUSA

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