Customer Life Time Value Model for Syphone

Topics: Time, Marketing, Term Pages: 4 (1150 words) Published: January 31, 2011
Question 1
What is the lifetime value of a typical customer in each of the four segments, in current dollar values? Compare these figures to the “Gross margin” figures in the original spreadsheet. What can you learn from this comparison? Solution 1

Following are the lifetime value of a typical customer in each of the four segments, in current dollar values. Segments / Segment descriptionCustomer lifetime valueGross margins Large accounts$78,454$63,000

Large accounts, rebate$70,769$36,000
Small accounts$10,679$10,800
Small accounts, rebate$10,919$7,200
Lost customers$0$0

The interesting thing that comes out when comparing the lifetime value of Customer and Gross margins for various Segments is that Customer accounts which are acquired by providing 20% rebates although have approx. 40% less gross margin in the initial year but they tend to generate quite a high amount cumulative profit in the long term and the difference is not as high as 40% initial margin. The difference in the Customer Life Time Value for large customers is about 10%. In case of Small Accounts Customer Life Time Value of customer getting rebate goes on to overhaul the ones without rebate and moreover the small customers that are not getting rebate are unprofitable in the long run. Question 2.

Of the 15,000 customers SyPhone has today, how many will still be SyPhone customers in five years? What is the overall churn rate after five years? Answer the same questions, segment per segment. Solution 2

In 5 years only 2221 customers will remain active with Syphone across all segments, the overall churn rate after 5 years will be about 85%. Segment wise churn rate is shown in the table below. The customers who get rebates tend to be more loyal in comparison to customers who do not get rebates.

Segments / PeriodsCurrent periodActive Customers after 5 yearsOverall Churn Rate in 5 years Large accounts5002594.96716
Large accounts, rebate200052173.93233
Small accounts...
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