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Your firm sells high-end road and mountain bikes and related accessories. The following information is available...

Your firm sells high-end road and mountain bikes and related accessories. The following information is available to estimate customer lifetime value for a new customer: 

Average order: $ 529 
Frequency of orders: 2.1 /year 
Average margin: 60 % markup on retail 
Customer retention rate: 61 % 
Promotional/communication costs/yr $ 31 
Your discount rate: 9 % 
Customer acquisition cost $ 162 

What is the maximum amount your firm can afford to spend to increase customer retention from 61 % to 81 %? Report your answer rounded to the nearest dollar. 

To answer the question, calculate CLV at the higher retention rate and subtract the CLV at the lower retention rate. The difference will be the maximum amount the company can afford to spend to increase customer retention.

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Expert Solution

jeff jeffy answered 2 years ago
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