Great Gator Gifts (GGG) launched a Touchdown Club, where Gator fans can create a “wish list” of Gator items. Every year, at the beginning of football season, GGG sends a link to the spouse of each member of the Touchdown Club with a reminder to kick the season off with a special Gator gift. GGG attracted new customers at a cost of $25.00 each and tracked their purchases over a 4-year period. The average annual purchase was $500.00, with a gross margin of 60% and annual per capita marketing expense of $50.00. GGG uses a discount rate of 8%, and the observed annual retention rate of Touchdown Club members was 50%. What was GGG’s 4-year CLV?
https://warrington.video.ufl.edu/Mediasite/Play/0823104c2dc74f8cac525e9872a3bfea1d
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Please complete and correct if necessary the Excel file.
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CVLExam.xlsx
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CLVExample.pdf
Sheet1
| Data Given | |||||||||
| New Customers | ?? | ||||||||
| Acquisition Cost/customer | $25 | ||||||||
| Revenue/customer | $500 | ||||||||
| Gross Margin % | 60% | ||||||||
| Mktg Exp Per Capita | $50 | ||||||||
| Discount Rate | 8% | ||||||||
| Retention Rate | 50% | ||||||||
| Time | 4 Years | ||||||||
| Year | |||||||||
| 1 | 2 | 3 | 4 | Total | |||||
| Revenue | 500 | 500 | 500 | 500 | |||||
| COGS | 200 | 200 | 200 | 200 | |||||
| Gross Maring % | 60% | 60% | 60% | 60% | |||||
| Contribution | 300 | 300 | 300 | 300 | |||||
| Marketing Expense | 50 | 50 | 50 | 50 | |||||
| Cash Flow | 250 | 250 | 250 | 250 | |||||
| Discount Rate | |||||||||
| Retention Rate (zero @ Y1 | |||||||||
| Expected NPV | Cumulative NPV | ||||||||
| 25 | Acquisition Cost | ||||||||
| CLV |
Computational Formula C = Cash Flow d = Discount rate t = Time period r = Retention probability A = Acquisition cost
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Great Gator Gifts (GGG) launched a Touchdown Club, where Gator fans can create a “wish list” of Gator items. Every year, at the beginning of football season, GGG sends a link to the spouse of each member of the Touchdown Club with a reminder to kick the season off with a special Gator gift. GGG attracted new customers at a cost of $25.00 each and tracked their purchases over a 4-year period. The average annual purchase was $500.00, with a gross margin of 60% and annual per capita marketing expense of $50.00. GGG uses a discount rate of 8%, and the observed annual retention rate of Touchdown Club members was 50%. What was GGG’s 4-year CLV?
USEFUL NOTES FOR:
Great Gator Gifts (GGG) launched a Touchdown Club, where Gator fans can create a “wish list” of Gator items. Every year, at the beginning of football season, GGG sends a link to the spouse of each member of the Touchdown Club with a reminder to kick the season off with a special Gator gift. GGG attracted new customers at a cost of $25.00 each and tracked their purchases over a 4-year period. The average annual purchase was $500.00, with a gross margin of 60% and annual per capita marketing expense of $50.00. GGG uses a discount rate of 8%, and the observed annual retention rate of Touchdown Club members was 50%. What was GGG’s 4-year CLV?
Introduction
The Gator Gifts Great Gator Gifts (GGG) launched a Touchdown Club, where Gator fans can create a “wish list” of Gator items. Every year, at the beginning of football season, GGG sends a link to the spouse of each member of the Touchdown Club with a reminder to kick the season off with a special Gator gift. GGG attracted new customers at a cost of $25.00 each and tracked their purchases over a 4-year period. The average annual purchase was $500.00, with a gross margin of 60% and annual per capita marketing expense of $50.00
Let’s look at the inputs.
The first year of the Touchdown Club
The average purchase during the first year, $500
The average annual purchase over 4 years, $500
Gross margin percentage: 60% 5/8ths of sales price is profit! So this means that if you have a $100 item and sell it for $120, you make $20 on each sale (gross margin).
Calculation: 75.00
The calculation for the average first-year gross margin per customer is
(0.6)(500) = $300
The average annual purchase multiplied by gross margin percentage (0.6) yields an estimate of $500,000 in sales over four years.
First, we need to calculate the average first-year gross margin per customer, which is average annual purchase multiplied by gross margin percentage (0.6)
First, we need to calculate the average first-year gross margin per customer, which is average annual purchase multiplied by gross margin percentage (0.6).
The calculation for this is simple: $500 times 60% = $300.00 or 300 units per year at an average price of $500 each means that your business should expect to sell 3,000 units over four years if you continue at the same pace as you were going before launching your Touchdown Club campaign!
Conclusion
So, in summary, the club members spent $50.00 per year (on average) and GGG had an average annual profit of $150.00 per member. The club had 4 years to pay back its initial investment and still make a profit at the end of those 4 years.