This lesson explores the key metrics used in portfolio management—Customer Lifetime Value (CLV) and Share of Wallet—and explains how these metrics are used to make strategic decisions.

6.1 Customer Lifetime Value (CLV)
Customer Lifetime Value is the total profit a customer is expected to generate over the duration of their relationship with the bank . CLV is a critical metric for portfolio management because it helps banks:

  • Identify the most valuable customers.

  • Allocate resources to the most profitable segments.

  • Justify investment in customer acquisition and retention.

  • Measure the effectiveness of relationship management strategies.

6.2 Share of Wallet
Share of Wallet is the percentage of a customer’s total banking business that a bank captures. For example, if a customer uses the bank for their current account but has a mortgage, investments, and insurance with other banks, the share of wallet is low. Increasing share of wallet through cross-selling and up-selling is a key objective of portfolio management.

6.3 Relationship Between CLV, Share of Wallet, and Profitability
Research shows that having additional bank relationships is a variable that explains higher profitability for some businesses but not for others. Understanding which relationships are more powerful in explaining customer profitability is key for deciding when to offer bundled products or apply additional discounts or special underwriting treatment .

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