Quiz

1.	Compute the lifetime value, after 3 years, of newly acquired customers given these facts: 400,000 customers; retention rates 62 percent, 70 percent, 74 percent; average purchase $320, $340, $350; cost percent 65 percent, 63 percent, 62 percent; acquisition cost $140; no marketing costs; market rate of interest 7 percent; risk factor1.5.
2.	Develop a second table to show the effect of a 4 percent increase in the retention rate, an increase in annual sales of $12, and marketing costs of $6 per customer per year, with everything else the same.
3.	Show the profit or loss to the firm after 3 years if it makes the 4 percent increase. Assume 400,000 customers.
4.	Determine the value of these names for resale, assuming brokers’ fees of 25 percent and assuming that the buyers use email, with a1.2 percent success rate. Assume four rentals of names per year. Email costs $0.05 each, and the LTV of the names is the same as that developed in Question1. Buyers offer 50 percent of the value of the names to them.
5.	List five profitable uses for email names in your own situation. Estimate the annual value of the email names resulting from each use.
6.	Provide five reasons why regular packaged goods names are worthless.
7.	List five specific action steps to be taken in your company (or your client’s company) to obtain email names. Estimate how many you will capture during the next 12 months.
8.	Come up with a viral marketing plan for your company, listing what you will promote and providing the text of the viral message to be sent by your customers to their friends.
9.	Of your current junk emails, find out how to unsubscribe from ten of them. List the percentage that was easy to do and the ones that were hard.
10.	Think of a last-minute special email that would work for your company. Write the sender’s address, the email subject, and the first five sentences of the email.

Answers

1.

	Year 1	Year 2	Year 3
Customers	400,000	248,000	173,600
Retention rate	62%	70%	74%
Spending rate	$320	$340	$350
Revenue	$128,000,000	$84,320,000	$60,760,000
Cost rate	65%	63%	62%
Costs	$ 83,200,000	$53,121,600	$37,671,200
Acquisition cost ($140)	$ 56,000,000
Total costs	$139,200,000	$53,121,600	$37,671,200
Profit	–$11,200,000	$31,198,400	$23,088,800
Discount rate	1	1.22	1.35
NPV of profit	–$11,200,000	$25,572,459	$17,102,815
Cumulative NPV of profit	–$11,200,000	$14,372,459	$31,475,274
Lifetime value	–$28	$35.93	$78.69

2.

	Year 1	Year 2	Year 3
Customers	400,000	264,000	195,360
Retention rate	66%	74%	78%
Spending rate	$332	$352	$362
Revenue	$132,800,000	$92,928,000	$70,720,320
Cost percent	65%	63%	62%
Costs	$ 86,320,000	$58,544,640	$43,846,598
Acquisition cost ($140)	$ 56,000,000
Marketing cost ($6)	$ 2,400,000	$ 1,584,000	$ 1,172,160
Total costs	$144,720,000	$60,128,640	$45,018,758
Profit	–$11,920,000	$32,799,360	$25,701,562
Discount rate	1	1.22	1.35
NPV of profit	–$11,920,000	$26,884,721	$19,038,194
Cumulative NPV of profit	–$11,920,000	$14,964,721	$34,002,915
Lifetime value	–$30	$37.41	$85.01

3.

	Year 1	Year 2	Year 3
Old LTV	–$28.00	$35.93	$78.69
New LTV	–$29.80	$37.41	$85.01
Difference	–$1.80	$1.48	$6.32
400,000 customers	–$720,000	$592,262	$2,527,641

4.

Mailing	100,000	$0.05	$5,000.00
Response	1,200	1.20%
Response revenue		$78.69	$94,425.82
Less mailing		$5,000	$89,425.82
Per name			$0.89
Offer price			$0.45
Sales	4	$1.79
Commission		25%	$1.34

5.

Answers will vary. You have to do the work.

6.

Any five of the six following answers are correct:

Low margin.

Coupon redemption is very slow.

To make a profit, you need repeat sales (low margin). You can’t redeem a coupon for every sale, or you would go broke. Therefore, you never find out about the subsequent sales.

There is no way to figure out if you are succeeding.

Discounts don’t produce loyalty.

Manufacturers won’t buy the names.

7.

Answers will vary.

8.

Answers will vary.

9.

Answers will vary.

10.

Answers will vary.