QUESTION 1 Shannon’s currently boasts a customer base of 1,750 customers that fr

Question

QUESTION 1

Shannon’s currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $29 per visit. Shannon ‘s current variable cost of goods sold is 50% of sales. The customer base is growing at the rate of 3% per month with a customer retention rate of 0.73%, based on data collected from its website and an analysis of credit card receipts. It’s current cost of capital for borrowing and investing is about 12% per year. What is Shannon’s approximate CLV for its average customer? Compute your answer to the nearest penny.

QUESTION 2

Assume that Shannon’s decides to move forward with its loyalty / rewards program. Estimates for the cost per customer are $5.81 per month. Average customer margins, before subtracting off the cost of the loyalty / rewards program, are expected to increase to 33.91 per customer per month with a boost in retention to .82 per month. What is the resulting CLV if the annual interest rate for discounting cash flows remains the same as in Q1 (i.e. 12%)? Round your answer to the nearest penny.

QUESTION 3

Assume that Shannon’s decides to move forward with its loyalty / rewards program. Estimates for the cost per customer are $4.7 per month. Average customer margins, before subtracting off the cost of the loyalty / rewards program, are expected to be 33.99. Assuming that Shannon’s wishes to obtain a minimum CLV of $120, what is the required retention rate that must be achieved? Assume that the interest rate is 1% per month. Compute your answer to the nearest 1/100 of a percent e.g. 50.13%. However, do not include the % symbol.

Explanation / Answer

QUESTION 1

Shannon’s currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $29 per visit. Shannon ‘s current variable cost of goods sold is 50% of sales. The customer base is growing at the rate of 3% per month with a customer retention rate of 0.73%, based on data collected from its website and an analysis of credit card receipts. It’s current cost of capital for borrowing and investing is about 12% per year. What is Shannon’s approximate CLV for its average customer? Compute your answer to the nearest penny.

QUESTION 2

Assume that Shannon’s decides to move forward with its loyalty / rewards program. Estimates for the cost per customer are $5.81 per month. Average customer margins, before subtracting off the cost of the loyalty / rewards program, are expected to increase to 33.91 per customer per month with a boost in retention to .82 per month. What is the resulting CLV if the annual interest rate for discounting cash flows remains the same as in Q1 (i.e. 12%)? Round your answer to the nearest penny.

QUESTION 3

Assume that Shannon’s decides to move forward with its loyalty / rewards program. Estimates for the cost per customer are $4.7 per month. Average customer margins, before subtracting off the cost of the loyalty / rewards program, are expected to be 33.99. Assuming that Shannon’s wishes to obtain a minimum CLV of $120, what is the required retention rate that must be achieved? Assume that the interest rate is 1% per month. Compute your answer to the nearest 1/100 of a percent e.g. 50.13%. However, do not include the % symbol.

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