We use cookies to give you a better experience. Carry on browsing if you're happy with this, or read our cookies policy for more information.

Skip main navigation

Customer Lifetime Value: Netflix

Watch Raj Venkatesan explain how to calculate customer lifetime value.
0.7
Now let’s walk through a simple way of calculating lifetime value with Netflix as an example. So there are many components to calculating lifetime value, and we’ll walk them through here. So let’s consider the expected lifetime in months. Netflix is able to tell how many months a customer stays with Netflix and that is 20 months. On average a customer is able to stick with Netflix for about 20 months. The average gross margin that Netflix makes per customer per month is $1.50. For this example, let’s assume that the marketing costs per month per customer is $0. So the net margin is 50- 0. So the customer lifetime value would be 50 x 20, that’s about $1000.
62.6
So if Netflix is able to tell what is the average gross margin per month per customer, it knows the lifetime in months that an average customer sticks with Netflix. It can use this historic information to say any new customer that Netflix acquires is worth about 1000 bucks. So if you flip that to see how much Netflix should spend to acquire a new customer, we would say Netflix should not spend more than $1000. So in a formal sense, let’s get a definition of customer lifetime value here. So if you have done net present value, then I would suggest that you think of Customer Lifetime Value as a net present value of customer relationships.
116.3
CLV is the expected net present value of future cash flows from a customer relationship. It is a discounted sum of all future customer revenues minus product and servicing and remarketing costs. So this gives you a formal definition of customer lifetime value. And now we’re going to take this definition and see how this translates into an equation And then apply that equation, play with it a little bit using different examples, and see how that will help in determining marketing activities.
This article is from the free online

Marketing Analytics

Created by
FutureLearn - Learning For Life

Our purpose is to transform access to education.

We offer a diverse selection of courses from leading universities and cultural institutions from around the world. These are delivered one step at a time, and are accessible on mobile, tablet and desktop, so you can fit learning around your life.

We believe learning should be an enjoyable, social experience, so our courses offer the opportunity to discuss what you’re learning with others as you go, helping you make fresh discoveries and form new ideas.
You can unlock new opportunities with unlimited access to hundreds of online short courses for a year by subscribing to our Unlimited package. Build your knowledge with top universities and organisations.

Learn more about how FutureLearn is transforming access to education