Question

Skinny Foods, Inc. is a meal delivery service that delivers a month’s worth of low- fat, low-calorie meals to your door to aid you in your weight loss efforts. Customers can cancel their subscriptions at any time. Skinny Foods charges $339 per month for this service. Variable costs are $199 per customer per month, and per-customer marketing spending amounts to $24 a year. The attrition rate is 8% a month. Calculate the CLV of a customer that Skinny hopes to acquire if the annual discount rate is 16%.

Please show the work as I'm trying to learn the concept

Answer 1

Answer:

Calculation of contribution margin:

Contribution margin

= selling price - variable cost per month - marketing spending per month = $ 339 - $ 199 - ( $24/12) = $ 339 - $ 199 - $ 2 = $ 339 - $ 201 = $ 138

$138

• Therefore , Contribution margin is $ 138
• Retention rate = 1 - attrition rate = 1 - 0.08 = 0.92
• Retention rate = 92% per month
• Annual discount rate = 16%

Customer lifetime value

= $ 138 * 0.92/ (1+0.16-0.92) = $ 138 * 3.8333333333333 = $ 529

$ 529

Therefore , the customer life time value of customer is $ 529.