Question

BioHealth sells a 30-tablet bottle of its turmeric capsules online for $23. Its profit margin per bottle is 69%. The marketing director has noted that the average first-time buyer places very few additional orders. In light of this, the company is considering offering a 16% discount to customers who subscribe to a 6-month automatic delivery plan, with monthly deliveries. It is expected that 46% of first-time buyers will sign up for the automatic delivery plan and the average customer will renew the delivery option multiple times resulting in an average of 2 years of monthly purchases. What is the expected CLV of the delivery plan per new customer?

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Answer 1

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Answer:

Annual profit contribution = Selling price * Profit margin % * Time period (in months)

= 23*0.69*12 = 190.44

Given that the avergae customer will get retained for an average of 2 years=>

Total annual contribution = 190.44*2 = 380.88

Now calculating the acquisiton costs

= Selling price * Discount %* Time period (in months)*Percentage of customers signing up

= 23*0.16*6*0.46 = 10.1568

=> Expected CLV per new customer = Total contribution - Acquisition costs

=  380.88 - 10.1568 = 370.7232