Question

Using his TightWad(R) database, Stu's MileageMiser has developed a new GPS based service to certify drivers for insurance discounts. He tracks their speeds, locations, and braking activity and delivers reports to insurance companies. January 1, 2009 he had 10,000 paying customers. Of that group, a year later, 9,900 were still customers. He spent $24,000 on programs designed to keep current customers happy and $45,000 on marketing to acquire new customers. His total number of customers on January 1, 2010 was 14,000. His revenue per customer is $55 per year and variable costs before marketing per customer are $5 per year.

e) What is Stu's annual churn rate? What is the retention rate?

Answer 1

Stu's retention rate = customers retained over time / initial customers at the beginning of period

= 9900/10000 =99%

Churn rate = customers left / initial customers = 10000-9900/10000 =1%