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Customer Net Present Value (NPV) Calculator
Use this Customer NPV (Net Present Value) Calculator to calculate the "Net Present Value" of a customer based on cost of capital, their profitability, purchase history and lifespan (how long they are a customer). This is a method of determining the true value of that customer, and based on that value, whether you should be making future investments in trying to retain that customer. See definitions below for additional clarification.
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Instructions (Click to Open)
Enter your values (cost of capital, average sale, gross profit %, average purchases made per year, and the average customer life in years) in the cells below. Tab to move to the next cell.
You can do what-if-analysis by changing the different values to see the impact these changes have on your overall campaign's performance.
All fields are required. Definitions of terms used can be found below the calculator.
Definitions (Click to Open)
NPV (Net Present Value): Is the value of an investment calculated as the sum of its initial cost and the present value of expected future cash flows. It is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met.
If… It means…
NPV > 0 The investment would add value to the firm.
NPV < 0 The investment would subtract value from the firm.
NPV = 0 The investment would neither gain nor lose value for the firm.
Cost of Capital: Is the rate of return that a business could earn if it chose another investment with equivalent risk-in other words, the opportunity cost of the funds employed as the result of an investment decision. Cost of capital is also calculated using a weighted average of a firm's costs of debt and classes of equity. This is also called the composite cost of capital.