Question

Assume that a customer shops at a local grocery store spending an average of ​$400 a​ week, resulting in a retailer profit of ​$40 each week from this customer. Assuming the shopper visits the store all 52 weeks of the​ year, calculate the customer lifetime value if this shopper remains loyal over a​ 10-year life span. Also assume a 3 percent annual interest rate and no initial cost to acquire the customer. The customer yields ​$ nothing per year in profits for this retailer. ​(Round to the nearest​ dollar.)

Answer 1

Solution :

The customer life time value if the shopper remains loyal over a​ 10-year life span is = $ 17,742.8219

Thus, the customer yields ​$ 17,743  per year in profits for this retailer. ( when rounded of to the nearest dollar )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

Note :

The customer lifetime value is the present value of the yearly profit over a given life span.

As per the information given in the question we have

Weekly Profit = $ 40 ; No. of weeks in a year = 52

Thus the yearly profit = Weekly profit * No. of weeks in a year = $ 40 * 52 = $ 2,080

This yearly profit earned over a period of 10 years, is discounted, at the given 3 % annual Interest rate, to get lifetime value of a customer.