Question

The promotional group is planning to launch a new promotional campaign in an attempt to attract customers from an area of the community that your store does not currently attract customers. This plan will reach 5,000 households. The plan calls for spending $250,000 on the campaign. From the initial promotion, the expectation is to obtain an initial margin of $15.00 from each new customer in the store. They have also estimated that each customer will provide a lifetime value of $500. Question 1: What is the breakeven acquisition rate for the proposed program?

Answer 1

1. Answer: Break even aqcisition rate = ($ 2250000 - $15 x 5000)/5000 = $2175000/5000 = $435

Explanation:

Total new sales = $500 x 5000 = $2500000

• Profit generated by the customer each year = $500
• Number of years that they are a customer of the brand = 5 years
• Cost to acquire the customer = $250000

The customer lifetime value of this customer would be:

$ 500 x 5000 (Total annual profit from all customers) less $250000 (acquisition cost) = $2500000 - $250000 = CLV

Or, CLV = $ 2250000

Break even aqcisition rate = ($ 2250000 - $15 x 5000)/5000 = $2175000/5000 = $435