CUSTOMER LIFETIME VALUE
The total respondents of 5074 are actually our total customers rather than 424934 people to whom we have mailed because not all of them have responded to our Newsletter. Our average net cash per period was $6445.2 hence we have divided our net cash of $6445.2 with our total customers, 5074 to get $1.27 as our profit per customer per period. Out of the total initial subscribers 50% re-subscribed to the services which means our conversion rate is of 50%. After this, the initial price of subscription was of $139 and discounted price was $99, therefore our discount rate is 29%. Using the customer lifetime value formula our customer lifetime value is $0.8. The customer lifetime value is shown in exhibit 3.
Breakeven response rates
The total revenue for each of the first 4 lists is $1050, $7000, $15000 and $25000. The total revenue is calculated after multiplying total number of names with average purchase. We have calculated cost of promotion after adding CPM and other costs like Printing, Letter shop, Postage, and fulfillment cost together. To get our breakeven response rate to match our rate of Investment we have divided cost of promotion with total revenue. The break even response rates are 50%, 7%, 3%, and 2% for the four recommended mailing lists for future prospecting. The break even response rates are shown in exhibit 4.
The past experience have shown that the average response rate that the Newsletter had got was of 1.19%. In comparison to that all the response rates are higher than the average rate. The only mailing list they can buy can be of Business Magazine as its response rate is 2% which is near to Dan Silver Newsletter Company.
EXHIBITS
| exhibit 1 | |
| rented names | 500000 |
| profit | 64,452 |
| profit per rented names | $ 0.13 |
| fixed cost per name | $ 0.15 |
| Profit/loss | $ 0.02 |
| exhibit 2 | |
| total fixed cost | $ 72,750.00 |
| respondents | 5223 |
| cash | 56 |
| in-mail cost | 219692 |
| Net cash | $ 72,796.00 |
| respondent % | 1.23% |
| exhibit 3 | |||||||||
| average net cash per period | 6445.2 | ||||||||
| respondents/customers per period | 5,074 | ||||||||
| Profit per customer per period | $ 1.27 | ||||||||
| conversion rates | 50% | ||||||||
| discounted rate | |||||||||
| initial value | 139 | ||||||||
| discounted price | 99 | ||||||||
| discounted rate | 29% | ||||||||
| customer lifetime value | $ 0.80 | ||||||||
| customer lifetime value = | (Profit per customer per period * retention rate)/(1+ discounted rate - retention rate) | ||||||||
| exhibit 4 | ||||
| BREAK EVEN RESPONSE RATE | ||||
| Financial newsletter | health Newsletter | Personal finance magazine | Business Magazine | |
| No. of names(000) | 15 | 200 | 500 | 1000 |
| Avergae purchase | 70 | 35 | 30 | 25 |
| Total revenue | 1050 | 7000 | 15000 | 25000 |
| CPM | 200 | 170 | 150 | 150 |
| Printing | 242.5 | 242.5 | 242.5 | 242.5 |
| Letter shop | 45 | 45 | 45 | 45 |
| Postage | 23 | 23 | 23 | 23 |
| fulfillment cost | 12 | 12 | 12 | 12 |
| cost of promotion | 522.5 | 492.5 | 472.5 | 472.5 |
| ROI | 2.0 | 14.2 | 31.7 | 52.9 |
| RESPONDENTS(000) | 0.15 | 2 | 5 | 10 |
| BREAK EVEN RESPONSE RATE | 50% | 7% | 3% | 2% |
............
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