You run a food truck and have identified a new construction project downtown that will be...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You run a food truck and have identified a new construction project downtown that will be a four- year project. You estimate that in the first year you will have 75 customers per day, each of whom buys an average of $17 in food from you on any given visit. On average, you earn margins of 50% on revenue. You expect to visit the site every weekday throughout the year except for 2 full weeks of holidays when no work is performed. Assume that all but 10% of your customers in year 1 stay on through year 2 and that your churn doubles each year thereafter (e.g., it's 20% at the end of year 2, etc.). How much is each customer worth (discount rate = 9% annually)? (10 points) What is your total customer equity at the beginning of the project? (5 points) Q5) Your company has the opportunity to acquire a new customer who will generate $5,791 per month in margin as long as she remains a customer. She's willing to leave her current provider as long as you build her a swimming pool. You're asked to provide to your manager a number that would represent the most your company should spend on the construction of the swimming pool. Your boss tells you that this potential customer would periodically flip a (fair) coin and if it came up heads she would stay with you as a customer and if it came up tails she would find another provider. Either way, she would keep the swimming pool you built for her. The only catch is that your boss isn't sure whether she'll flip the coin annually or semi-annually (i.e., once every six months). Assuming that the annual discount rate is 10%, please calculate the upper limit (the most you'd spend on the pool) for each of these two cases. (15 points) Q6) You get a text from your boss -- your organization's CMO - who is sitting in a meeting with the CEO. Your boss needs your help. She tells you that the data scientist who preceded you had generated a CLV estimate for new customers in the East of $678 and in the West of $549. The annual discount rate was 10% as usual and she recalls that the annual retention rate was assumed to be 90% for both segments. She didn't remember what the margin assumptions were, but she does remember that they were the same across segments. What the CEO wants to know, though, is that even though we all know that there will be no growth in the West, what assumption was made on the growth rate in the East? (10 points) Q7) Imagine you're deciding which of two acquisition channels to invest in. Display Ads will attract customers that on average have annual margins twice that of customers attracted through Search Ads but with lower retention rates. How much lower would the retention rate have to be in order to make you indifferent between the two channels, assuming the discount rate is .10? Specifically, if the Display Ad retention rate is rp and the Search Ad retention rate is rs, what would the ratio S need to be for TD these channels to yield customers with equal CLV's? For this analysis, assume the CAC's are the same. Hint: the answer will be a function of rs. (10 points) What does this result tell us about the relative impact of margin and retention on CLV? (5 points) Q8) You've decided to open a pop-up restaurant at a four-week long theater festival in West Virginia this summer. Your focus will be on feeding the 6,000 performers that will be at the festival throughout the month. Yours will be one of many possible food outlets so you will need to do some promotion (flyers, for example) to get the word out. However, to prevent "clutter" the festival organizers will only allow you to promote in the few days leading up to the start of the event. You estimate that you can earn a margin of $115 per customer per week, and that the weekly retention rate would be about 30% and would remain unchanged. Assume the discount rate is (drum roll) 10%. What is the most you'd be willing to pay to acquire a new customer at the outset of the event? (10 points) How (if at all) would this change if you planned to leave after only three weeks because you wanted to attend your cousin's wedding in Austin? (5 points) You run a food truck and have identified a new construction project downtown that will be a four- year project. You estimate that in the first year you will have 75 customers per day, each of whom buys an average of $17 in food from you on any given visit. On average, you earn margins of 50% on revenue. You expect to visit the site every weekday throughout the year except for 2 full weeks of holidays when no work is performed. Assume that all but 10% of your customers in year 1 stay on through year 2 and that your churn doubles each year thereafter (e.g., it's 20% at the end of year 2, etc.). How much is each customer worth (discount rate = 9% annually)? (10 points) What is your total customer equity at the beginning of the project? (5 points) Q5) Your company has the opportunity to acquire a new customer who will generate $5,791 per month in margin as long as she remains a customer. She's willing to leave her current provider as long as you build her a swimming pool. You're asked to provide to your manager a number that would represent the most your company should spend on the construction of the swimming pool. Your boss tells you that this potential customer would periodically flip a (fair) coin and if it came up heads she would stay with you as a customer and if it came up tails she would find another provider. Either way, she would keep the swimming pool you built for her. The only catch is that your boss isn't sure whether she'll flip the coin annually or semi-annually (i.e., once every six months). Assuming that the annual discount rate is 10%, please calculate the upper limit (the most you'd spend on the pool) for each of these two cases. (15 points) Q6) You get a text from your boss -- your organization's CMO - who is sitting in a meeting with the CEO. Your boss needs your help. She tells you that the data scientist who preceded you had generated a CLV estimate for new customers in the East of $678 and in the West of $549. The annual discount rate was 10% as usual and she recalls that the annual retention rate was assumed to be 90% for both segments. She didn't remember what the margin assumptions were, but she does remember that they were the same across segments. What the CEO wants to know, though, is that even though we all know that there will be no growth in the West, what assumption was made on the growth rate in the East? (10 points) Q7) Imagine you're deciding which of two acquisition channels to invest in. Display Ads will attract customers that on average have annual margins twice that of customers attracted through Search Ads but with lower retention rates. How much lower would the retention rate have to be in order to make you indifferent between the two channels, assuming the discount rate is .10? Specifically, if the Display Ad retention rate is rp and the Search Ad retention rate is rs, what would the ratio S need to be for TD these channels to yield customers with equal CLV's? For this analysis, assume the CAC's are the same. Hint: the answer will be a function of rs. (10 points) What does this result tell us about the relative impact of margin and retention on CLV? (5 points) Q8) You've decided to open a pop-up restaurant at a four-week long theater festival in West Virginia this summer. Your focus will be on feeding the 6,000 performers that will be at the festival throughout the month. Yours will be one of many possible food outlets so you will need to do some promotion (flyers, for example) to get the word out. However, to prevent "clutter" the festival organizers will only allow you to promote in the few days leading up to the start of the event. You estimate that you can earn a margin of $115 per customer per week, and that the weekly retention rate would be about 30% and would remain unchanged. Assume the discount rate is (drum roll) 10%. What is the most you'd be willing to pay to acquire a new customer at the outset of the event? (10 points) How (if at all) would this change if you planned to leave after only three weeks because you wanted to attend your cousin's wedding in Austin? (5 points)
Expert Answer:
Answer rating: 100% (QA)
Customer equity in the food truck example Your customer equity for the fouryear construction project is 1039709 This is calculated using the following steps Calculate the customer lifetime value CLV o... View the full answer
Related Book For
Practical Management Science
ISBN: 978-1305250901
5th edition
Authors: Wayne L. Winston, Christian Albright
Posted Date:
Students also viewed these marketing questions
-
Business Plan for a Christian Healthcare Organization Signature Assignment Instructions A business plan is a document typically prepared to obtain funding and/or financing. the three major elements...
-
Parkview Fish Tacos sells tacos for $5.50 each. The cost of each taco follows: Materials (food) Labor Variable overhead Fixed overhead ($7,200 per month, 4,500 tacos per month) ok Total costs per...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Apply Theorem 3 to calculate the matrix exponential e At for each of the matrices in Problems 35 through 40. A = 13 3 3 3 01 3 3 00 23 0002
-
During the year, Xenoc produces 1,500 pairs of speakers and sells 1,200 pairs. Xenoc produces stereo speakers. The selling price per pair of speakers is $1,800. There is no beginning inventory. Costs...
-
Which method, the percentage-of-receivables method or the percentage-of-credit-sales method, is typically used in practice? Why?
-
GSK Inc., accountants have developed the following data from the company's accounting records for the year ended November 30, 2005: a. Purchase of plant assets, $100,000 b. Cash receipt from issuance...
-
The following data were accumulated for use in reconciling the bank account of Commander Co. for March: a. Cash balance according to the companys records at March 31, $13,065. b. Cash balance...
-
e. Explain the advantages of dry etching and wet etching for semiconductor fabrication processes.
-
Cascade Company has four employees. All are paid on a monthly basis. The fiscal year of the business is June 1 to May 31. The accounts kept by Cascade include the following: .:. The following...
-
By looking into general meanings of these two words, causation simply means the action of causing, and anything that produces an effect; while effectuation means to cause to happen. If causation is...
-
If the high temperature steam has a temperature of 2 9 7 . 7 K and the low temperature reservoir has a temperature of 1 4 7 . 8 K what is the carnot efficiency of this process
-
A 63.1 kg astronaut is on a space walk when the tether line to the shuttle breaks. The astronaut is able to throw a 11.0 kg oxygen tank in a direction away from the shuttle with a speed of 11.8 m/s,...
-
Carmen Diaz is 30 years old. She has been suffering from serious pelvic pain for 3 months. She finds it hard to work because of the pain and even harder to perform the chores required by daily...
-
An 80 kg man drops from rest on a diving board -3.1 m above the surface of the water and comes to rest 0.59 s after reaching the water. The acceleration due to gravity is 9.81 m/s 2. What force does...
-
Brad wanted to buy some land from Harold and build a new home. Harold was willing to sell 3 acres in his subdivision for $6,000. Company, in another state, was willing to sell Brad a prefabricated...
-
Antifreeze is a compound added to water to reduce the freezing point of a mixture. In extreme cold (less than -35F), one car manufacturer recommends that a mixture of 70% antifreeze be used. How much...
-
Don Griffin worked as an accountant at a local accounting firm for five years after graduating from university. Recently, he opened his own accounting practice, which he operates as a corporation....
-
Consider a situation where there is a cost that is either incurred or not. It is incurred only if the value of some random input is less than a specified cutoff value. Why might a simulation of this...
-
MacBurgers is attempting to determine how many servers to have available during the breakfast shift. On average, 100 customers arrive per hour at the restaurant. Each server can handle an average of...
-
You want to take out a $300,000 loan on a 20-year mortgage with end-of-month payments. The annual rate of interest is 6%. Twenty years from now, you will need to make a $40,000 ending balloon...
-
The water tank shown in Fig. 14.33 is supported by a hollow circular steel column. The tank, made of steel, is in the form of a thin-walled pressure vessel and has a capacity of 40,000 litres. Design...
-
Using the third-order Runge-Kutta method, solve Problem 11.15. Data From Problem 11.15:- Using the second-order Runge-Kutta method, solve the differential equation \(\ddot{x}+1000 x=0\) with the...
-
Linear acceleration method a. Assumes that acceleration varies linearly between \(t_{i}\) and \(t_{i}+\theta \Delta t ; \theta \geq 1\) b. Assumes that acceleration varies linearly between \(t_{i}\)...
Study smarter with the SolutionInn App