Question

You assume college students will mostly purchase cookies. You plan to sell individual cookies in store for $2 per cookie or $24 per dozen. It costs $2 to make a dozen cookies, and you figure college students will purchase 72 cookies per year each of their four years in school. To be conservative, you assume a 50% retention rate. You think you will spend $0.40 per student per year on retention costs.

For care packages, you plan to charge $30 per dozen cookies and figure parents will purchase 2 care packages per year (once each semester) over the four years the child is in school. You assume a 60% retention rate. Costs to make the cookies are the same as for the college market ($2 per dozen), but there is an additional $1 per dozen in packaging and delivery costs. You think you will spend $0.25 per parent per year on retention costs.

For cakes, you plan to initially offer just one-sized cake for $60. It costs $20 to make the cake. You think clients will be quite loyal and estimate an 80% retention rate with clients purchasing 1 cake in the first year and 3 cakes each subsequent year. You plan to spend $2 per client in retention costs and use a 4-year lifetime to maintain consistency with the other markets.

You plan to spend $100 in upfront marketing costs to acquire new customers. You figure this will come out to about $1 per student for the college market, $5 per client for the parent (care package) market, and $20 per client for the special occasion cake (local) market.

Given these numbers and assuming an 8% discount rate, what is the customer lifetime value of a customer in each target market? Round your answer to the nearest 100th (i.e., use 2 decimal places) and show your work.

Answer 1

Given the information:

Each customer value for Cookie is $212.49, Care is 76.86, Cake is 152.60. Refer the calculation below.