Customer lifetime value for a firm is the net profit or loss to the firm from a customer over the entire life of transactions of that customer with the firm.
- Calculation of the expected number of selling number in a specific time period by using BG/NBD.
- Calculation of the expected average profit with Gamma Gamma modeling.
- By combining them we get the CLTV.
- CLTV = (Customer_Value / Churn_Rate) x Profit_margin
- Customer_Value = Average_Order_Value * Purchase_Frequency
- Average_Order_Value = Total_Revenue / Total_Number_of_Orders
- Purchase_Frequency = Total_Number_of_Orders / Total_Number_of_Customers
- Churn_Rate = 1 - Repeat_Rate
- Profit_margin
This Online Retail II data set contains all the transactions occurring for a UK-based and registered, non-store online retail between 01/12/2009 and 09/12/2011. The company mainly sells unique all-occasion gift-ware. Many customers of the company are wholesalers.