Answer to Question #259512 in Marketing for Junaid

Question

Imagine you started your own taxi business in Toronto. The average customer takes approximately 3 rides and spends $70 a month. For each ride, 50% of the fare goes to the driver, and $2 goes to the administrative and maintenance costs. Assuming 36% of riders find alternative travel arrangements and don’t use the taxi company the following year and the discount rate is 3% per year. What is the CLV?

The answer is $865.54

Can you show me how to get that answer please

Answer 1

CLV margin is the difference between the revenue you receive from a customer and all of the costs associated with that customer in a given timeframe. To get CLV, it is then multiplied by your retention rate and divided by one plus your average discount rate minus your retention rate.

$CLV=Revenue*Time *(1+retention/rate)$

$Revenue=70$

Timespan; since 36% find alternative means then in a year $=0.64*12$

Time Span $=7.68$

Rate$=[1+(0.03-0.64)$ $=0.39$

Then the retention should be $=1-0.39 = 0.61$

Therefore the CLV should be;

$CLV=70*7.68*1.61$

$CLV=865.54$