Customer equity is the total of all customer lifetime values of both current and future customers (please refer to this article for more information on how it is calculated).
This means that customer equity is a single measure of all future profits (on a discounted basis) that will be generated by the firm’s (or brand’s) customers.
Because this metric takes into account:
- Profits from current customers
- Profits from future customers
- The “free” acquisition of customers from the firm’s previous brand building and other related marketing efforts
- The expected degree of loyalty from customers
- The level of profitability gained from customers – both of a short-term and long-term basis
- The ongoing marketing investment in customer acquisition and retention
- The time value of money (through using a discount)
Therefore, total customer equity is a metric that can measure the value and contribution of ALL marketing activities up to that point in time, taking into account both short-term and long-term expected profits from customers.