Quantitative Models (CLTV, Forecasting)

Customer Lifetime Value:

Assume that you are a salesperson for Skweeky-Kleen, a major provider of janitorial supplies, and that you are seeking the business of Amandla Enterprises. Your sales manager wants to know if this account is worth signing. You make the following assumptions:

• If you sign Amandla, then the supply contract will be for a four year-period
• Amandla will initially make one order in the first year this will triple every year
• The initial order size is $100,000 this will increase by 5% every year
• Cost of sales is initially 90%this will decrease by 5% points every year to a minimum of 80%
• Marketing costs are initially $200,000 in the first year this will decrease by 10% every year
• The interest rate is 9% throughout the five-year horizon

1A. What is the Customer Lifetime Value of Amandla Enterprises; namely, what is the Cumulative Net Present Value of this customer in the fourth year? (We covered this in the class on Salesperson Resource Allocation. Also, this is best done in the Excel spreadsheet posted to the class conference).

1B. If Amandla Enterprises insisted on a three-year contract instead, would you still be willing to sign them? Why/why not?