I was learning about BYTD in an online tutorial here

I understand that it is used

a) to predict the number of purchases that will be made by the customer.

b) Lifetime value of the cuatomer over a defined period.

I see that the authors use a term called "Discounted cash flow" and assign 0.01% as monthly discount.

However, I don't unserstand this.

Can someone help me understand what is the use of DCF and why should we use it?


1 Answer 1


Future cash reflects the belief that it's more valuable to have a dollar today than a dollar tomorrow. At a very high level of abstraction, if you have a dollar today, you have the option to either spend it or keep it. Keeping the dollar naturally implies that you have the dollar tomorrow, so the case of having a dollar today also includes the outcome "have a dollar tomorrow" among your options.

Another way to look at it is that you could die before tomorrow, and in that case, you'd never realize the value of getting a dollar tomorrow.


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