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Break-even analysis and customer lifetime value For the information given, rank the customers in terms of...

Break-even analysis and customer lifetime value

For the information given, rank the customers in terms of customer lifetime value. Use a discount rate of 8 percent and treat the average sales figures as annuities.

Expected Lifetime (years) Average Annual Sales Average Profit Margin
Customer B 6 $42,000 14%
Customer C 12 $25,000 15%
Math   Statistics-And-Probability   
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Answer #1

Uniform series present worth factor =

Present worth uniform series payment factor for customer B = (1-1.08^-6)/0.08

= 4.6228

Present worth uniform series payment factor for customer C = (1-1.08^-12)/0.08

=7.5361

Customer Lifetime Value, CLV = Average annual sales * Average profit margin * present worth factor

CLV of customer B =42000*0.14*4.6228

=27182

CLV of customer C =25000*0.15*7.5361

=28260

Rank of the customers in terms of CLV

Rank 1 : Customer C

Rank 2 : Customer B

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