The customer lifetime value (CLTV) enables you to determine for a given customer segment how the customer base and profitability have developed over time. You can use this information to draw conclusions and thereby predict the future development of this customer segment and then base your investment decisions on such predictions.

The entire life cycle (divided into lifetime periods) for a typical customer is considered in the analysis of the customer base of a segment. The analysis calculates in particular the profit that a company makes with a typical customer in a lifetime period and the proportion of customers in one lifetime period to be retained by the company by the next lifetime period. A lifetime period of a customer is typically a year, but it can be set according to industry-specific requirements.

• You need to have data about the costs and revenues generated with a customer and you need to be in a position to determine when the customer relationship began. CLTV analysis produces most informative results if the segments under analysis each describe homogeneous customer behavior.
• You need to have an SAP Business Information Warehouse (SAP BW) with Release 2.1C (Support Package 8) or higher. The functions for CLTV analysis are available in Release 2.1C and higher.

1. Gather data on customers and customer profitability and determine when the customer relationship began.
2. If possible, create homogeneous customer segments by customer behavior.
3. Determine the customer retention rate, profit per customer, and the CLTV for a segment.
4. Predict the future CLTV.
5. Deploy the results for the operational processes.

The section Customer Lifetime Value Analysis: 1 BW, 1 CRM, 1 R/3 describes just one of several options for using the CLTV analysis to achieve a closed loop scenario, whereby all data relevant for the CLTV analysis is transferred from OLTP systems into SAP BW for processing, and then applied in the OLTP system for operational processes.