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Thread: Formula Using Retention Rate - Am I thinking this through correctly?

  1. #1
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    Question Formula Using Retention Rate - Am I thinking this through correctly?

    I need help making sure I am doing this right...

    I am trying to solve for the total Lifetime Value of a member where I deduct their initial order from the total.

    Variables:

    A = # of members
    B = 42% retention rate
    C = $750 lifetime spend
    D = $48 initial order

    Total Lifetime Value = ABC - ABD (I know I can reduce this to AB(C-D) but I want to keep it easy for now.)

    The "ABC" portion calculates the Lifetime Value portion.
    The "ABD" portion is supposed to calculate the Initial Order amount that I need to deduct from the Lifetime Value.

    Here is the part that has me questioning myself. Since the retention rate is only 42%, I would want to calculate the value of the initial order, which I am deducting in the second part of the equation, by taking the number of members * the initial order * .42. Correct? I am just questioning whether the second part of the equation should be "ABD" or just "AD"...

    Can anyone help? If it is "ABD", can you help me understand why?

    I really appreciate your help!
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  2. #2
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    Re: Formula Using Retention Rate - Am I thinking this through correctly?

    Hey sammysrefuge.

    Can you define what D is?

    Also - what is C a function of? Your post is a little difficult to process.

    The initial order amount if it is a function of A and B will find the number of members times (what I guess is average) retention rate which will give average number of members.

    The order amount will basically represent the average member count times some value as it applies for the order amount for each person.

    It should help you to think in units to get the consistency and clarity of your formulas as opposed to formulas without units itself.
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