Question

You are working for a small specialty catalog retailer. You sell high-end outdoor equipment, specializing in recreational fishing gear. Your company has the opportunity to purchase a competitor who is experiencing financial stress. You have been provided with the following information.

Acquisition price: $ 2,250,000
Number of customers acquired: 7,195
Estimated retention rate: 77 %
Discount rate: 12 %

Based on this information, what would be the MINIMUM annual margin dollars per new customer that would be required to justify the acquisition? Report your answer rounded to the nearest dollar.

To solve this problem, first calculate the acquisition cost per customer. Then solve for M (margin dollars) that would make CLV = 0, using the acquisition cost just calculated. As long as the margin dollars are ≥ M, the CLV of the acquired customers will ≥ acquisition price.

Answer 1