document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1194187>Question 1194187</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Clothing shop spends $80 for mailing and printing a catalogue which is sent to 100,000 prospects. The response rate to the mailing is 2.2%. Prospects who become customers spend $6000 per year as long as they are still active customers. A customer has a probability of “attriting” (“churning”) each year of 15%. If a customer attrites, he or she ceases to be a customer and never returns. The firm also spends $350 per year in marketing (catalogues and service) to each active customer. The firm has a gross margin of 45% and uses a discount rate of 10%.<BR>\n" );
document.write( "Calculate<BR>\n" );
document.write( "i) Net Profit per customer </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #848528 by </B><A HREF=/tutors/aboutme.mpl?userid=parmen><B>parmen(42)</B></A><img src=\"/images/stars/stars-07.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=parmen><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/images/nopicture.jpg><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=848528\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> Certainly, let's calculate the Net Profit per Customer.\r<BR>\n" );
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document.write( "**1. Calculate Annual Customer Revenue:**\r<BR>\n" );
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document.write( "* Annual Revenue per Customer = $6,000 <BR>\n" );
document.write( "* Annual Gross Profit per Customer = $6,000 * 45% = $2,700\r<BR>\n" );
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document.write( "**2. Calculate Annual Customer Costs:**\r<BR>\n" );
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document.write( "* Annual Marketing Costs per Customer = $350\r<BR>\n" );
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document.write( "**3. Calculate Annual Customer Profit:**\r<BR>\n" );
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document.write( "* Annual Customer Profit = Annual Gross Profit - Annual Marketing Costs<BR>\n" );
document.write( "* Annual Customer Profit = $2,700 - $350 = $2,350\r<BR>\n" );
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document.write( "**4. Calculate Customer Lifetime Value (CLTV):**\r<BR>\n" );
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document.write( "* CLTV = (Annual Customer Profit / (Discount Rate + Churn Rate)) <BR>\n" );
document.write( "* CLTV = ($2,350 / (0.10 + 0.15)) = $2,350 / 0.25 = $9,400\r<BR>\n" );
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document.write( "**Therefore, the Net Profit per Customer is $9,400.**\r<BR>\n" );
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document.write( "**Note:** This calculation assumes a perpetual customer relationship, meaning the customer remains active indefinitely. In reality, customer relationships may have a finite lifespan. \r<BR>\n" );
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document.write( "Let me know if you have any other questions or would like to explore different aspects of this scenario!<BR>\n" );
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