Problem:
Beaujolais Financial Group (BFG) segments its customers into premium members, who purchase extensive services, and standard members, who purchase minimal services. It offers premium members a 10 percent discount on the total package of services purchased but requires standard members to pay full price. BFG devotes one full-time customer representative per 100 premium members and one per 1,000 standard members. Customer representatives receive salaries and a bonus of 1 percent of customer revenue (after 10 percent discount, if applicable). BFG estimates that it spends twice as much on total promotions for premium members to encourage their loyalty. General and administrative cost, which is not traced to customers, is $2,400,000 per year.
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Customer Sery ice Resources
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Total
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Premium
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Standard
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Number of Customers
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125.000
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45.000
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80.000
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Avq sales salary/year
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$35.000
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$35.000
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Promotion Costs
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$2.000.000
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Avq revenue per customer (b4 discount)
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$440
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$50
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Requirement:
Estimate BFG’s customer and overall profitability, using a spreadsheet.