To better understand how NPR can be applied, a business can start by charting the CLV for each customer.
Next, sort the customers by CLV from high to low on the X-axis.
And what do we see? A curve which looks like the power law!
We can then segment the customers into Best-Rest-Test.
Marketers and business owners can then get to work on the customers to grow the CLV. In the graph below, the brown area shows how the predictive CLV changes for some customers leading to an increase in the area (which is the predicted revenue).
In this case, what has not been factored in is churn and new customer acquisition. Also, the customer acquisition costs (CAC) have been ignored.
These charts show how the CLV calculation can help in predicting revenue. Business leaders can now get a forward-looking impact of their present-day customer-centric initiatives. Given that costs are more directly under the control of the leaders, Net Predicted Revenue (NPR) is the one number that can thus be used to predict revenue – and perhaps profits.
Tomorrow: The One Number To Predict Revenue (Part 9)