Question

A cable company spends, on average, $ 600 to acquire a customer. Annual maintenance costs per customer are $ 45. Annual record-keeping and billing costs are $ 30 per customer. While the price of the basic service to customers is $ 30/month, 40% of customers buys the premium package at $ 50/month and 10% buy the superpremium package at $ 80/month. Over time, 80% of all customers remains with the company in the long run. The firm uses a discount rate of 8%. What is the average CLV for all customers?

Answer 1

The given formula for CLV is:

CLV = m * r / (1+d-r) - AC(Acquisition Costs)

where m is average margin per customer (the profit the we make per customer after reducing variable costs)

Since 40% of customer pays $50/month and 10% pay $80 per month, the remaining 50% pay $30 per month

Net revenue per month = 0.4*50+0.1*80+0.5*30 = $43/month

Net revenue per year = 43*12 = $516

Net margin (m) = $516 - $45-$30 = $441

retention ratio (r) = 80% = 0.8

discounbt rate (d) = 8% = 0.08

Acquisition cost (AC) =600

CLV = 441* 0.8/(1+0.08-0.8) - 600

CLV = 1,260 - 600 = 660

Average CLV for all cutomers = $660

answered by: anonymous