1. CLTV Calculation for the Calyx & Corolla Case
(1) Net acquisition cost of a new customer.
Note:
- Cost of one catalog to each prospect (assume the prospects are from rented mailing lists)
- Response rate (take the midpoint of the response rate range provided in the case);
Total acquisition cost
$0.40 (average cost of reaching one prospect: 0.32 catalog+0.08mailing list rental) / 1.5%
(response rate) = 26.7
Average contribution of one order/customer
Average order amount - COGs - freight - handling
= $45 (midpoint of $30-60 ) - 45*20% - 9 - 5 = $22
Net acquisition cost of a new customer
26.7-22 = 4.7
(2) Discounted net value each customer can bring in their lifetime.
(Note: Assume that each of the customers acquired stays with Calyx & Corolla for 5 years).
First, figure out the cost of retaining each customer (i.e., the cost of sending catalogs to each
customer in a year). Second, figure out the contribution from the orders each customer place in a
year. Finally, figure out the net value and then discounted the net value. The discounted net value
of one customer over the 5 years is: (Year1 net value) / (1 + i) + (Year2 net value ) / (1 + i)2
+
…… + (Year5 net value) / (1 + i)5
. (Note: Assume the discount rate i = 10%)
Year 1 Year 2 Year 3 Year 4 Year 5
Cost
3.8
(0.32*12)
3.8 3.8 3.8 3.8
Contribution
19.8
(22*7.5%*12)
(assume a response
rate of 7.5%)
19.8 19.8 19.8 19.8
Net Value 16 16 16 16 16
Discounted
Net Value
(16/1.1) (16/1.1^2) (16/1.1^3) (16/1.1^4) (16/1.1^5)
Total Discounted net value (across five years) = 60.7
(3) CLTV of a Calyx & Corolla customer
Total Discounted Net Value – Net Acquisition Cost = 60.7-4.7 = 56