How to Use: For each Application Problem the questions presented in the text are restated. The data provided in the text is all that is needed to answer the questions. Change the input cells as needed to answer the questions posed. Print the results as you go along. Also, experiment with the data to learn more about the dynamics of this marketing analysis. For your own user analysis you will need to replace all the input cells in the interactive spreadsheets.

Sample Problem: It cost $250 to acquire a customer and $50 per year to retain that customer. The customer life is currently five years. The customer margin is $100 in year 1 and increases at a rate of $50 per year until it reaches $200. The company uses a 15% discount rate to compute the life time value of a customer.

Question 1: How would the Life Time Value of a Customer change if the acquisition cost increased from $250 to $500?

Question 2: How would the Life Time Value of a Customer change if the customer life decreased from 5 years to 4 years?

Experiment: Change other yellow input cells to see how the Life Time Value of a Customer changes.


Lifetime Value of a Customer

Customer Retention

 

Customer Life

  

Year

0

1

2

3

4

5

6

7

8

9

10

Customer Margin

$

$

$

$

$

$

$

$

$

$

$

Acqusition Cost

$

$

$

$

$

$

$

$

$

$

$

Retention Cost

$

$

$

$

$

$

$

$

$

$

$

Net Profit

 

 

 

 

 

 

 

 

 

 

 

Discount Rate

%

 

Present Value Multiplier

 

 

 

 

 

 

 

 

 

 

 

Net Present Value

 

 

 

 

 

 

 

 

 

 

 

Lifetime Value
of Customer

 
  

Market-Based Management Application Problems is a © copyright 2010 product developed and owned by Dr. Roger J. Best.
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