How NOT to calculate LTV

Many companies undervalue their customer equity because they calculate LTV the wrong way

It is extremely important that LTV does not get calculated by taking an average of all customers. This is the wrong way to do it. The customer base must be segmented first. (1) [could use some more detail here]

It is now a known truth that most companies will undervalue their customer equity because they don’t properly segment customers. By taking the average lifetime value across the entire customer universe they are usually getting a lower number than if they had segmented properly. (3)

Vodaphone did a segmentation of churn risk into 3 categories: Low/Medium/High churn risk, with - y-axis = % Customers - x-axis = attrition percent. ! (2) (This would have been a wonderful analysis to do for Gem.)

References: 1. https://s3.amazonaws.com/kw-wdp/epubs/20150912-WDP-Fader-CustomerCentricity_Chapter4_CourseraCustomerAnalytics001.pdf - page 78 2. - page 85 3. - page 86