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Shoppe is an online shopping site has an annual sale of $3.2 million and they spend...

Shoppe is an online shopping site has an annual sale of $3.2 million and they spend about $4,000 per week on paid search. This business had 13,000 new customers in 2018, with a retention rate of 32%. The cost of goods $2.31 millions. At a monthly discount rate of 6%, what is the CLV of a customer?

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Answer #1

Steps to calculate Customer Lifetime Value:

1. Determine Life Time

Life time = 1/ (1-Retention Rate %) in years

Life time = 1.47 years

2. Life time value = Annual Sales * Life Time

Life time value = 3,200,000*1.47

Life time value = 4,705,882.35

3. Life Time Value Per Customer= Life Time Value / Number of Customers

Life Time Value Per Customer= 4,705,882.35/13,000

Life Time Value Per Customer = $361.99

4. Determine Cost of Acquiring a customer

Annual Spending Cost = 4000 * 52 (4000 weekly with 52 weeks)

Annual Spending Cost = 208,000

Cost of Acquiring a Customer (CAC) = Annual Spending Cost/ Number of Customers

Cost of Acquiring a Customer (CAC) = 208,000 / 13,000 = $16

5. Customer Life Time Value = Life Time Value per customer - CAC

Customer Life Time Value = 361.99 - 16

Customer Life Time Value = $345.99

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