How much are you worth to a given company if you continue to purchase its brand for the rest of your life? Many marketers are grappling with that question, but it€™s not easy to determine how much a customer is worth to a company over his or her lifetime. Calculating customer lifetime value can be very complicated. Intuitively, however, it can be a fairly simple net present value calculation. To determine a basic customer lifetime value, each stream of profit is discounted back to its present value (PV) and then summed. The basic equation for calculating net present value (NPV) is as follows:

1. Assume that a customer shops at a local grocery store spending an average of $150 a week and that the retailer earns a five percent margin. Calculate the customer lifetime value if this shopper remains loyal over a 10-year lifespan, assuming a five percent annual interest rate and no initial cost to acquire the customer.
2. Discuss how a business can increase a customer€™s lifetime value.

NPV