Question

Our study shows that one customer will have different transaction values in the next five years with Giant Tiger (See Table 6). The gross contribution is 0.25 and discount rate is 0.01. Suppose current year is 2006. Please figure out the Lifetime Value (LTV) of this customer. Suppose we have total 2000 customers who will share the same purchase patterns as this customer in the next five years. How much is the customer equity?

Table 6. Future Transaction

Gross contribution		0.25
Discount rate		0.01
	2007	2008	2009	2010	2011
$ Amount	700	600	500	400	500
GC
LTV

Answer 1

	2007	2008	2009	2010	2011
$ Amount (a)	700	600	500	400	500
Gross contribution (b)	0.25	0.25	0.25	0.25	0.25
GC (c=a*b)	175	150	125	100	125
Discount rate (d)	0.01	0.01	0.01	0.01	0.01
Years (e)	1	2	3	4	5
LTV (f=c/(1+d)^e)	173.27	147.04	121.32	96.10	118.93
CE= 173.27+147.04+121.32+96.10+118.93= $656.67
FORMULA
GC = $ Amount X Gross contribution
LTV = GC/(1+Discount rate )^YEAR