The Six Sigma Handbook, Revised and Expanded, 2nd Edition

3.3. CALCULATING THE VALUE OF RETENTION OF CUSTOMERS

Customers have value. This simple fact is obvious when one looks at a customer making a single purchase. The transaction provides revenue and profit to the firm. However, when the customer places a demand on the firm, such as a return of a previous purchase or a call for technical support, there is a natural tendency to see this as a loss. At these times it is important to understand that customer value must not be viewed on a short-term transaction-by-transaction basis. Customer value must be measured over the lifetime of the relationship. One method of calculating the lifetime value of a loyal customer, based on work by Frederick Reichheld of Bain and Co. and the University of Michigan's ...