In 2020, XYZ Auto Insurance ran a marketing campaign to boost its customer pool from 100,000 to 105,000 customers, using a series of commercials on local TV networks and mailing to its prospective 100,000 customers. The company allocated $1,000,000 as the campaign’s budget but ended up spending $1,200,000 in 2020. However, the company was only able to gain 3,000 new customers. On the other hand, the company lost 250 customers every month during the same period. At the same time, XYZ increased its annual customer maintenance budget by $1,000,000 to $5,000,000 to improve
customer care for its existing customers. A newly acquired customer’s average annual insurance premium is roughly $350 per year, and the average interest rate that XYZ pays to its primary bank,
Delta, is 5%.

A.) What is the CLV of an average customer acquired in 2020 for the next 5 years?

B.) For XYZ to make a profit, at least how long must a customer be kept?

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Answer rating: 100% (QA)

To calculate the Customer Lifetime Value CLV and determine how long a customer must be kept for XYZ ... View the full answer