A question related to Customer Lifetime Value?
I need serious help about the following question, I don't know what to do...
Assume that a sports club has asked you to research the impact of customer retention on their profits.
Their current yearly turnover is 25%; that is, 75% of customers continue to use the club in the next year. The sports club has 550 active members. They have set yearly membership fees at $490, and they estimate that their yearly cost to serve a customer is $200. While there is no exact figure on customer acquisition costs, you do a little number crunching and estimate that they spend $40 on average for advertising and communication for each new customer joined. They also pay a $50 commission to customer representatives as an incentive to sell the membership. The company is interested in the value of customers for a planning horizon of 4 years (you can interpret this as average members staying with the club for 4 years). You assume that 10% per year is a reasonable rate for discounting purposes.
a) Calculate the Customer Lifetime Value.
b) What would be the additional earnings from an average customer if the yearly turnover rate was 15% instead of 25%?
I would be very grateful if someone could help me.
Many many Thanks in advance...