A manufacturer of business copier workstations has a 75 percent customer retention rate. Their accounting department estimates the incremental contribution to profit and overhead as 40 percent. Customers purchase the workstations every three years at an average cost of $1,500. The average value of a loyal customer is _____.
A) more than $200 and less than or equal to $300
B) more than $300 and less than or equal to $400
C) more than $400 and less than or equal to $500
D) more than $500

Question

Quizplus · Accepted Answer

The average value of a loyal customer can be calculated using the formula for the lifetime value of a customer (LTV), which takes into account the retention rate, profit margin, and purchase frequency. Given a 75% retention rate, a 40% profit margin, and a purchase cycle of every three years at $1,500, the LTV exceeds $500 when considering the long-term value of repeat purchases over many years.

A Manufacturer of Business Copier Workstations Has a 75 Percent