On average, Velo Mobile spends $1,000 to acquire a new customer. Customers can buy one of three different packages, outlined as follows:
Super Premium Package - $80/month
Premium Package - $60/ month
Basic Package - $40 / month
Each year, Velo Mobile spends $30 in maintenance and $50 in billing to serivce each customer account.
20% of Velo Mobile's customers purchase the Super Premium Package; 40% purchase the Premium Package; and 40% purchase the Basic Package. Over time, 75% of customers remain with the company from one year to the next.
1 - What is the lifetime value of a Super Premium customer?
2 - What is the lifetime value of an average customer?
3 - If the company currently has 1,000,000, what is the maximum amount of money it should be willing to spend to improve its customer retention rate from 75% to 85%?
4 - Assess the customer acquisition cost. Is this a reasonable amount to spend to acquire a customer in each of the segments? Why or why not?
Use 10% as the discount rate