RMT366 Spring 2020 discussion

After reading and studying the “Calculating-ltv.pdf” document ( linked here

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), use the following scenario to answer the questions.

The Bakery is a specialty bakery in a rural community that specializes in breads, savory pastries, and espresso. Their breads sale for an average $4.50/loaf; savory pastries, $2.00/piece; and espresso drinks, $4/drink. Having done little advertising, and relying mostly on word-of-mouth and Facebook, the owner now wants to advertise in the community to try and increase the customer base. They have come to you so that you can use your CRM skills to help them determine the estimated marketing costs for adding each new customer to their business.

You have been provided the following numbers, as they relate to the similar values in the “Calculating-ltv.pdf” document:

(s) Average customer expenditure per visit = $8.50

(c) Average number of visits per week (purchase cycle) = 1.5

(a) Average customer value per week = $12.75

(t) Average customer lifespan = 10 years

(r) Customer Retention Rate = 83% (remember to move the decimal point two places to the left to get the value to use in your calculations)

(p) Profit margin per customer = 44.5% (see note above concerning percentages)

(i) Rate of Discount = 8% (the rate of discount is just how we determine future cash flow based on current dollars; in other words, $1 today may only be worth .80 cents next year)

(m) Average gross margin per customer lifespan – calculate this number AFTER you have calculated the “Simple LTV Equation.”

In your discussion board post, answer the following five questions. Make sure to number your answers!

1. Using the “Simple LTV Equation,” calculate this LTV for The Bakery

2. Using the “Custom LTV Equation,” calculate this LTV for The Bakery

3. Using the “Traditional LTV Equation,” calculate this LTV for The Bakery

4. What is the maximum acquisition cost The Bakery should spend to acquire new customers?

5. Explain to the owner of The Bakery – who does not know what LTV is, its importance, or how to use it to help determine a marketing budget, what the maximum acquisition cost number means. Remember in your explanation to include what the LTV is, why it is important, and how to use it.

After you have submitted your post, be sure to respond to at least two of your classmates' posts!