Understanding Net Present Value vs. Lifetime Value

Reading a LinkedIn article I came across the term Net Present Value (NPV). Wikipedia describes NPV as “the present value of money today compared to the present value of money in future, taking inflation and returns into account.” It’s However, I found the writer, Sallie Krawcheck’s, personal explanation more thought provoking: “the willingness to forgo earnings today, to invest smartly for more earnings tomorrow.”

Instead of applying to finances, economics and accounting, I started to think how NPV can be applied to marketing and customer relationship building. As marketers, we’ve been programmed to calculate something similar called a Customer’s Lifetime Value (LTV), the predicted net profit for the entire future relationship of the customer…but what about a prospect’s Net Present Value? Are they even worth acquiring? In the years to come, will they be worth more or less than they are right now?

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