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 $26,100 and has a margin of 10%. Based on historical averages, 73% of people buying a new vehicle at Eastern will return for service 7 times over the next 5 years. Though varies considerably, Eastern generates approximately $145 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

Hi

The Answer would be

Step 1 :::: Actual : 73% * 7 = $145

Question : 73% increased by 5% so 78% and

The number of visits increased by 2 (7 --> 9) so the equation would be

Step2===》》78% * 9 = ?

Step3==》》cross multyply two equations

==》(78%×9×$145)/73%×7

So the ANSWER is $199