Final answer:
To estimate the lifetime value of a customer, compute the net present value of the customer's cash flow, which takes future profits and discounts them to their present value considering the time value of money.
Step-by-step explanation:
To estimate the lifetime value of a customer at a given rate of customer retention, you need to compute the net present value of the customer's cash flow. This involves understanding the future profits that a customer is expected to generate for the business and discounting them back to their present value. The formula from Table C1, though not fully provided, would apply a discount rate to the expected cash flows from a customer over time, taking into account how the value of money decreases over time due to factors such as inflation and opportunity cost.
The concept of customer lifetime value (CLV) is critical in business and marketing as it helps companies make informed decisions about how much they should invest in acquiring and retaining customers. By effectively calculating the CLV using the net present value method, businesses can predict the profitability associated with maintaining long-term relationships with their customers.