My supervisor tells me that our acquisition cost must not exceed 10% of the lifetime value of an average customer and that I must use a discount rate (d) of 15% to calculate a potential customer's LTV. I am planning to roll out an acquisition campaign in Year X.

 a) How much maximum (in dollars) can I spend in year X to acquire a customer who is going to be worth (value) $230 in Year (X+1), $265 in Year (X+2), $0 in Year (X+3) and $35 in Year (X+4)? 

 b) What appears to be the planning horizon (in years) for my acquisition campaign?

Answer rating: 100% (QA)

a To calculate the maximum acquisition cost in Year X you should find the present value PV of the cu... View the full answer