Bevo Mobile Telecommunications (BMT) spends at a cost of $870 to acquire anew customer, on average. Customers can buy into three different plans: 30% of customers buy a premium package at $65 per month; 20% buy the premium package and also add a data plan for a mobile device (laptop, tablet, etc.), for an additional $35, for a total of $100 per month (the "super-premium package"); the remaining customers buy the basic service package at $40 per month. BMT must spend$40 in maintenance cost and $25record-keeping and billing costs per customer per year. These maintenance and record-keeping costs are the same, regardless of the package. Over time, 75% of customers remain with the company from one year to the next. Assume a 10% discount rate.(For simplicity, assume the sum of all monthly payments are collected at the end of the year, and that the company's costs are incurred at the end of the year -so you may use the CLV formulas i.e. CLV=m(r/1+i-r)

a) What is the lifetime value of a new customer (including the cost of acquisition) of each customer type(premium, super-premium, and basic)? 

b)What is the average lifetime value of existing customers (not including the acquisition cost) across customer types?

c)If the company currently has one (1) million customers, what is the maximum amount of money it should be willing to spend to improve its customer retention rate from 75% to 85%?

Answer rating: 100% (QA)

Solution a To calculate the lifetime value CLV of a new customer we need to consider the monthly pay... View the full answer