Shannon’s brewery currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $32 per visit. Shannon ‘s current variable cost of goods sold is 50% of sales. The customer retention rate per month is 0.79, based on data collected from its website and an analysis of credit card receipts. Its current cost of capital for borrowing and investing is about 12% per year, or 1% per month. What is Shannon’s approximate CLV for its average customer? Compute your answer to the nearest penny.
To calculate the approximate Customer Lifetime Value (CLV) for Shannon’s average customer, we can use the following formula:
CLV = (Customer Value / Monthly Churn Rate) * (1 – Discount Rate)
Using the given data, we can calculate the CLV as follows:
Customer Value = ($32 * 2 visits/month) – (50% * $32 * 2 visits/month) = $32 Monthly Churn Rate = 1 – 0.79 = 0.21 Discount Rate = 1% per month = 0.01
CLV = ($32 / 0.21) * (1 – 0.01) = $1,518.87
Therefore, Shannon’s approximate CLV for its average customer is $1,518.87.
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