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Why Would a Company Calculate the Lifetime Value of a Customer

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Essay

Why would a company calculate the lifetime value of a customer? Should the company fight to retain every customer?


Definitions:

Income Statement Approach

A method for preparing the bad debt expense by estimating the amount of accounts receivable that will not be collected and adjusting the allowance for doubtful accounts accordingly.

Bad Debts Expense

The cost associated with accounts receivable that a company does not expect to collect due to customer default.

Receivables

Receivables, often called accounts receivable, are the funds owed to a company by clients or customers for goods or services already delivered or used but not yet paid for.

Bad Debts

Financial losses attributed to customers who fail to pay what they owe for purchased goods or services, often considered as an expense in accounting.

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