Question

You have just become president of a "super- regional" distributor and one of your first tasks is to estimate how much your average customer is worth to your firm. Your systems and marketing staff complied the following pieces of information. Using the CLV formula you learned as an ID student at UAB, calculate the estimated customer lifetime value of your current base of customers. Data: 30,000 customers. $200 acquisition cost. $350 average annual gross margin. 90% retention rate. 10% discount rate.

Answer 1

Per customer CLV = average annual gross margin x cumulative customer retention rate / cumulative discount rate - acquisition cost.

The calculative of CLV is as follows:.

Year 0 = -200 * 30,000 = -$ 6,000,000

Year 1 = 350 /1.1 * 30,000 =$ 9,545,455 ( as retention rate does not apply)

Year 2 = 350 / 1.21 (1.1*1.1) * 90% * 30,000 = $7,809,917

Year 3 = 350 /1.33 (1.21*1.1) *81% (90%*90%) *30,000 = $6,389,932

and so on.

Total CLV = $46,485,972