A regional electrical distributor currently has 1,000 customers who buy an average of $5,000 per year, generating a 50% margin. From experience, the company knows that 20% of its customers will not return the next year and it takes an average of $500 to acquire each new customer. Given the choice of 1) investing $50,000 in a new customer acquisition program for 100 additional customers or 2) investing $50,000 in a new retention program which would take the rate of retention from 80% to 85%, what should the company do?

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1 NAME: 2 A B C 3 Five Year Payout 4 5 Scenario 1: New Customer Acquisition 6 7 Incremental Customers: 8 Purchases: 9 Additional Annual Profits: 10 Cumulative Additional Annual Profits: 11 12 D E LL F G Year 1 Year 2 Year 3 Year 4 Year 5 13 Scenario 2: Customer Retention 14 15 Retained Customers @ 80%: 16 Retained Customers @ 85%: 17 Additional Retained Customers: 18 Incremental Annual Purchases: 19 Additional Annual Profits: 20 Cumulative Additional Annual Profits: 21 22 23 24 Conclusion: 222 25 26 100 Year 1 Year 2 Year 3 Year 4 Year 5 800 850 1 NAME: 2 A B C 3 Five Year Payout 4 5 Scenario 1: New Customer Acquisition 6 7 Incremental Customers: 8 Purchases: 9 Additional Annual Profits: 10 Cumulative Additional Annual Profits: 11 12 D E LL F G Year 1 Year 2 Year 3 Year 4 Year 5 13 Scenario 2: Customer Retention 14 15 Retained Customers @ 80%: 16 Retained Customers @ 85%: 17 Additional Retained Customers: 18 Incremental Annual Purchases: 19 Additional Annual Profits: 20 Cumulative Additional Annual Profits: 21 22 23 24 Conclusion: 222 25 26 100 Year 1 Year 2 Year 3 Year 4 Year 5 800 850

Answer rating: 100% (QA)

Answer Heres an analysis to help the regional electrical distributor decide between the customer acq... View the full answer