Account Attrition, Survivor Curves, and Customer Relationship Valuation

Richard K. Ellsworth

doi:10.5791/0897-1781-29.4.152

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Article Contents

Abstract
Customer Account Mortality
Survivor Curves and Customer Life Expectancy
Survivor Curve Analytic Process
Survivor Curve Numeric Example
Discounted Cash Flow Analysis
Conclusion

Editorial Type:

Article Category: Research Article

Online Publication Date: 01 Dec 2010

Account Attrition, Survivor Curves, and Customer Relationship Valuation

PE, ASA, CFA

Page Range: 152 – 159

DOI: 10.5791/0897-1781-29.4.152

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Abstract

Customer relationship populations are aggregated from individual customer accounts with statistical procedures founded in actuarial science used to numerically portray customer retirement behavior. Customer account life expectancy is described as a survivor curve that explains the pattern of customer relationship decline for a population. The customer relationship valuation process necessitates the separation of the actuarial life characteristics from the economic attributes of the customer relationship population with the application of a discounted cash flow analysis.

Figure 1.

Customer Account Curve Fitting Analysis

Figure 2.

Revenue Exposures Curve Fitting Analysis

Contributor Notes

Richard K. Ellsworth is with Deloitte Financial Advisory Services LLP. Mr. Ellsworth is an Accredited Senior Appraiser (ASA) in Business Valuation as well as a licensed Professional Engineer (PE) and a Chartered Financial Analyst (CFA).