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Customer lifetime value (CLV) data model and calculation

Updated on May 15, 2019

Applicable to both business-to-business (B2B) and business-to-consumer (B2C) customers, customer lifetime value (CLV) is a prediction of the net profit that is generated as a result of an organization's entire future relationship with a customer. CLV is implemented at the Communications Industry Foundation application level so that any applications built on the application can utilize this calculation functionality.

The CLV property for the Communications Industry Foundation application is located in Designer Studio, in the Application Explorer, in the PegaComm- tree.

  • For B2B customers, the property is located at Data Model > Property > CompanyBasicData > CustomerValue.
  • For B2C customers, the property is located at Data Model > Property > CustomerData > CustomerValue.

The factors that determine the CLV for each customer are located in the PegaComm-Int- tree in the COMMS_CLV_DETAILS data table.

CLV is calculated declaratively. The declare expressions and formulas that are used in this process are:

  • .CoCm = @(CFF:CFFUtils).PowerOf(.CoC/100 + 1, 0.08333)
  • .NPV = @(CFF:CFFUtils).npv(.CoCm, .ContractLength, .TotalMonthlyMargin) - .TotalCOA + .TotalOTC + .TotalOneTimeMargin
  • .TotalCOA = .CoADevice + .CoASales
  • .TotalMonthlyMargin = .TotalAddonMargin + .VoiceMargin + .MessagingMargin + .DataMargin + .MarginOOBForVoice + .MarginOOBforData + .MarginOOBforMessaging + .PhonePlan + .PhoneAddon + .FixedInternetPlan + .FixedInternetAddon + .TelevisionPlan + .TelevisionAddon + .TotalRecurringMargin

When calculating CLV, consider the margins that customers generate, and then subtract the costs incurred by the customer service profile (CSP) from that value. The input for the CLV calculation includes the following factors at the CSP level:

  • Cost of Capital – The cost of funds used for financing a business.
  • Cost of Acquisition – The cost to acquire a customer, which includes device cost, sales cost, and marketing cost.
    • For B2B customers, this also includes hardware costs and infrastructure setup costs.
  • Monthly Margin – The profit that the CSP makes on the services given to customers, which is divided into the following categories:
    • Voice margin
    • Data margin
    • Messaging margin
    • Margin on add-on services
    • Margin on out-of-bundle usage
    • Margin on phone specific plan
    • Margin on phone specific add-on services
    • Margin on fixed internet plan
    • Margin on fixed internet add-on services
    • Margin on television plan
    • Margin on television add-on services
    • Margin on other plans and usages
  • One-time Margin – The one-time profit that the CSP makes on the services that are given to the customer.

By using these variables, the Communications Industry Foundation application can derive the monthly cash flows for the customer until the contract is valid.

To calculate the present value of the future monthly cash flows, a discounting factor is required, which is derived from the cost of capital. The sum of all the discounted cash flows determines the net present value (NPV).

  • Margin on out-of-bundle usage

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