Question

A paint wholesaler, sells paint to professional painters. On average, each painter spends $38,333 per year on paint. The average gross margin for the paint wholesaler is 35%, and it currently has $4.2 million of sales in this segment. The current retention rate of each painter is 80%, and the revenue per painter is stable over time. (Assume a 10% discount rate.)

a) The marketing director proposes spending $1,000,000 for a one-time direct marketing campaign to acquire new professional painters. How many painters would the paint seller need to acquire to make this investment profitable in the long term? (10 points) Hint: Use CLV to help calculate the breakeven point. CLV = m [ r / (1+i-r)] r= retention rate i = retention rate m = annual profit or contribution margin b. The marketing director also wants to determine the maximum amount of money the paint seller should spend to increase the retention rate of the current professional painters from 80% to 90%.

Answer 1

Answer page-01 - освен from the problem Revenue per painter = 138,333 overage gross margin = 35º4. I sales = $4.2 million retention rate for each painter = 800/ Required © Gooss margin = 35°. =351. x 38333 = ¢ 13416.55 CLV = Gross margin x retentio rate . ll Rate of discount - retention rate) 80°/ = 13416.55 X 11+1016.-804) 2 5 0.8 13416, 55 X 10.1-0.8 = 13416.55% 0.8 0.3 13416.55 * 2.6667 35777.44

Hence, page:02 The number of painters :paint seller need to acquuie to make this investment profitable in the long term = invested amount - CLV 1000000 35777.47 = 27.95 = 28 customers CLV when setention rate is 80% = 35777.47 CLV when retention rate is qol. = 13416.55x90.1. (1410 -6, -9000) = 13416:55 X - (1+0.1-0.9) - 13416.55 X = 13416.55 X 4.5 = 60374.48 incremental 'CLV = 60374.48 - 35777.47 . . = 34597101

page:03 Total revenue - number of painters existing - - revenue per painter 4200000 38333 - 109.57 The maximum amount of money paint seller should spend to increase the retention rate of the current professional painters from 80% to gole = 109.57X 24594.01 - $2695000 - - -