Question

Eastern Motors Auto Dealership wanted to estimate the average CLV over a 5 year time horizon of a customer who purchases a new vehicle. The average vehicle sells for $23,800 and has a margin of 10%. Based on historical averages, 67% of people buying a new vehicle at Eastern will return for service 7 times over the next 5 years. Though it varies considerably, Eastern generates approximately $107 in margin on each service visit after accounting for parts and direct labor costs. What would be the value of a service loyalty program that increased the average number of visits by 2 (over 5 years) and increased the probability that a new vehicle purchaser would return for service by 5 percentage points (e.g. from 75% to 80%) on a per customer basis?

Answer 1

According to the above question they get a 10% margin on each vehicle sold

and average selling price of a car is $23800

hence the dollar margin in each car is $23800*10%/100%

i.e,23800*10/100 = $2380

there can be a difficulty in understanding which one to take as base as they have to mentioned it explicitly but it is implied that the base shall be taken as sales since the gross profit ratio has been associated with the the selling price of the product

when the sales are considered as the base the simplest way to calculate percentage is by

cost (difference between the two)

profit 10( as it is the percentage given)

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sales 100 (base is always 100)

the service margin is not calculated as the question requires

thank you for the question......kindly rate......it helps me a lot