Billbuddy

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  • Topic: Gross margin, Profit, M4 Sherman
  • Pages : 7 (2274 words )
  • Download(s) : 94
  • Published : February 4, 2013
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Question 1: Incremental Customer Lifetime Value
Calculated using revenue per costumers (ARPU) at 21 month average life time and 10% per annum discount rate. Average life time| | 21| months| | |
Discount rate| | 10| % = | 0.83%| per month|
 | Average customers| YBB customers| | | |
ARPU/month| 24| 29| | | |
NPV| $460.61 | $556.57 | | | |
Incremental value|  | $95.96 | | | |

Question 2: Sensitivity Analysis on Incremental Lifetime value of YBB Average life time changes| Life time (mths)| Average customers| YBB customers| Incremental value| up 25%| 26.25| 563.76| 681.21| 117.45|

down 25%| 15.75| 352.87| 426.38| 73.51|
up 50%| 31.5| 662.51| 800.53| 138.02|
down 50%| 10.5| 240.33| 290.40| 50.07|
The carriers will always realize higher incremental value. At an extreme case of 1day average life-time (assuming customer changes his/her mind and switch back after one day), carriers still have incremental value of $0.17 from additional revenue. Question 3: YBB and other distributors

(a) Carriers should be willing to pay additional $5 to YBB vs to distributors. This is because the additional fee of $5 is a relatively small percentage—ranging between 5 and 10%-- of total incremental value that carriers will get from YBB customers. Average life time | Customer life time (mths)| Incremental customer value| YBB incremental fee % to incremental value| Current| 21.00| $95.96 | 5.21%|

up 25%| 26.25| $117.45 | 4.26%|
down 25%| 15.75| $73.51 | 6.80%|
up 50%| 31.5| $138.02 | 3.62%|
down 50%| 10.5| $50.07 | 9.99%|

(b) The recurring monthly fee to YBB should be $1.82/month, assuming discount rate of 10% and average lifetime of customers of 21 months, calculated using = PMT(10/12,21,35) Question 4: YBB customers

* 95% of people who try the service will have savings.
* 71% of people who try YBB will switch under the no fee scenarios Question 5: No fee vs one-month saving fee to customer
* 35% of people who try YBB will switch if charged one month saving as fee (Exhibit 4) * On average, revenue per customer to YBB if YBB charges one month saving is $2.52/customer. (Average monthly bill before YBB = $31.5/month and saving at 8% saving = $2.52/month) * It does not make sense for YBB to adopt customer-fee based model as YBB will lose 47% of its revenue from visitors versus the carrier-based model.  | No fee to customers model| One month saving fee ($2.52) charged to customer| Revenues/100 visitors ($)| = 71*$35 = 2,485| = 35*($35+$2.52) =1,313| Diff revenue ($/100 visitors)| 1,172| |

Diff of revenue in %| 47%| |

Question 6: Customer acquisition
Paid search is a better method as it yields higher gross profit per visitor. Although the acquisition cost of paid search method is higher, the higher cost is offset by the higher % of visitors who try the analysis. We also need to factor in the fact that not all visitors who try will switch carrier (from exhibit 7). This is relevant as carriers will pay only if customers switch, paid search also warrants higher trial which leads to higher switch. Under these assumptions, YBB business model is viable as it yields profits in both cases.  | Paid search| Banner ad|

acquisition cost/visitor| 0.45| 0.35|
% who try analysis| 9.50%| 6.50%|
% of visitor switch carrier - Exhibit 7| 71%| 71%|
% of visitor who try and switch | 6.75%| 4.62%|
Revenue per visitors ($35*% of visitor who try and switch)| 2.36| 1.62| Gross profit/visitor ($/visitor)| 1.91| 1.27|

Question 7:
Average acquisition cost for visitors who land on the home page is highest in the first month and continues to go down after. Within a year, average acquisition cost goes down by 28%. This is because viral and repeat customers have no acquisition cost. The more trial on the website from new visitors, the more viral and repeat customers there will be,...
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