2000 new customers were attracted at a cost of 20 each and t

2,000 new customers were attracted at a cost of $20 each and then tracked over a 3-year period (T = 3). The average annual purchase was $1000.00, with a gross margin of 50% and annual per capita marketing expense of $100.00. Ridgeway uses a discount rate of 10%, and the retention rate was 40%. Use the formula below to compute.

What is Ridgeway’s CLV for the Birthday Club?

Solution

No of new customers 2000 Acqusition cost 20 Annual purchase 1000 Retention rate 40% Discount rate 10% Year 0 1 2 3 No of customers 2000 800 320 Cash inflow 1000000 400000 160000 marketing cost 200000 80000 32000 Net cash inflow 800000 320000 128000 CLV 1,047,903.83 Using the CLV formula