Question

Average order size for Pit Stop customers who own motorcycles is $239. These customers place 1.6 orders per year, and they typically order merchandise which generates a 51% contribution margin as percent of revenue. Pit Stop budgets $37 per year each for communications with their motorcycle-riding customers, and annual retention rate is 72%. Customer acquisition cost for these customers is $68 per customer. Assuming a corporate discount rate of 9%, find customer lifetime value for one motorcycle-riding customer at Pit Stop. (Rounding: nearest penny.) show step by step how you got the answer.

Answer 1

Ans: Pit Stop

Average order size per customers who own motorcycles is $239

Customers place 1.6 orders per year

Computation of customer lifetime value for one motorcycle-riding customer at Pit Stop

Average order size per customers		$239
orders per year		1.6
Revenue per annum		$382.4
Contribution	$382.4*51%	$195.02
Budgeted Communication cost		-$37
Customer acquisition cost		-$68
Profit		90.02
Retention ratio		72%
Revenue that can be retained	$90.02*72%	$64.82
Discounting Rate		9%
Life time Value	$64.82/9%	$720.19