## Practice Quiz on CLV:

### 1. If the retention rate for a customer cohort decreases and that customer generates a positive margin, what will happen to the total net profit for future periods?

It will decrease.

It will increase.

It will remain the same.

It cannot be determined. Correct

### 2. Fabulous Fitness Gym is trying to figure out how much each of their customers is worth. What is the CLV for an average club membership?

Monthly membership dues: \$160 per person

Variable costs for the membership and retention: \$30 per member

Length of the average active membership: 30 months

\$5,700

\$3,900

\$130

\$4,800

### 3. Natural Market, a local farm, provides customers who sign up, a weekly bag of fruits and vegetables.What is the short-term margin for the CLV formula?

Weekly margin: \$25 per customer

Weekly spending on customer retention: \$5 per customer

Because we don’t know the retention rate, we can’t calculate the short-term margin.

Because we don’t know the discount rate, we can’t calculate the short-term margin.

\$25

\$20

### 4. Ink on Demand provides subscription printer cartridge refills. What is the long-term multiplier?

Billing: At the beginning of the month

Average monthly net margin: \$20

Retention rate (r): 93%

Monthly discount rate (d): 3%

Hint: Use the formula for calculating CLV for customers who pay before they use the service.

\$20

10.3

9.3

\$186

### 5. Consider this subscription service. What is the CLV for an average customer?

Billing: End of the month

Monthly margin: \$100 per customer

Annual retention spending: \$780 per customer

Monthly retention (r): 97%

Discount rate (d): 3%

\$17.17

\$600.83

\$565.95

\$16.17

### 6. Consider this subscription to a video gaming site. What is the CLV for an average customer?

Billing: Beginning of the month

Monthly margin (M): \$150 per customer

Annual retention spending (R): \$360 per customer

Monthly retention (r): 96%

Discount rate (d): 2%

\$3,121

\$2,550

\$1,920

\$2,040

### 7. JoJo’s Coffee acquires 100 customers in July. What is the present value of total net profit in August?

Monthly margin (M): \$40 per customer

Monthly retention spending (R): \$10 per customer

Monthly retention rate (r): 95%

\$4,000

\$4,700

\$2,850

\$3,000

Using the formula r*cohort size*(M-R) allows you to forecast August earnings. What would you project earnings to be for September?

8.Question 8

### 8. In December, Shirley Snow Plow Services had 50 customers. What is the present value of total net profit in February?

Monthly margin (M): \$75 per customer

Monthly retention spending (R): \$0

Monthly retention rate (r): 95%

\$3,562.50

\$3,750.00

\$3,384.38

\$3,215.16

### 9. Virginia Golf Club owns and operates a chain of golf courses. In April, 75 people signed up for a membership. What is the present value of total net profit from April to June for this cohort of golfers?

Monthly margin (M): \$110 per customer

Monthly retention spending (R): \$20

Monthly retention rate (r): 80%

\$4,320

\$20,250

\$5,400

\$16,470

### 10. You are trying to maximize CLV based on the following information. How much should you spend on marketing and retention (R) to maximize CLV?

M = \$50

d = .01

If R = \$49, then r = 99%

If R = \$40, then r = 90%

If R = \$30, then r = 75%

If R = \$20, then r = 60%

If R = \$10, then r = 50%

Tip: You can calculate each combination individually to arrive at an answer, but to really hone your understanding of CLV and how the various components interact, I encourage you to set up a spreadsheet (Google, Excel) with the appropriate formulas and play around with the numbers, assuming a spend from 0 to \$50 and different retention rates. As a bonus, you can use the spreadsheet on your final quiz!

\$30

\$10

\$40

\$49

## Week 3 Final Quiz on CLV

### 1. If the discount rate increases, what will happen to the CLV?

It will increase.

That cannot be determined.

It will decrease.

It will remain the same.

1. If the retention rate of a customer cohort increases and that customer generates a positive margin, What will happen to the total net profit for future periods ?

### 2. Palmetto Digital sells a web-based marketing design subscription service and needs to know how much each of their customers is worth. What is the CLV for an average client subscription?

Monthly subscription cost: \$25

Average retention marketing costs per customer: \$10 per month

Average length of customer relationship: 40 months

\$1,400

\$600

\$1,000

\$400

### 3. Good Morning provides a office breakfast delivery service. What is the short-term margin for the CLV formula?

Weekly margin: \$20 per customer

Weekly spending on customer retention: \$3 per week

Because we don’t know the retention rate, we can’t calculate the short-term margin.

Because we don’t know the discount rate, we can’t calculate the short-term margin.

\$20

\$17

3. Danny’s Dairy Farm provides a weekly home delivery service. What is the short-term margin for the CLV formula?

Weekly margin: \$15

ANNUAL spending on customer

retention: \$260 per customer

14.57

\$364.25

\$25

13.57

### 5. Consider a weekly cleaning service. What is the CLV for an average customer?

Weekly margin: \$80

Annual retention spending: \$1040

Weekly retention (r): 96%

Discount rate (d): 2%

\$960

\$1,020

\$16

\$17

5. Consider a weekly cleaning service. What is the CLV for an average customer?

Billing: End of the week

Monthly margin: \$300

Annual retention spending: \$300

Monthly retention (r): 90%

Discount rate (d): 5%

\$1, 925.00

### 6. Consider this subscription service for time in a shared office space. What is the CLV for an average customer?

Billing: Beginning of the month

Monthly margin (M): \$200 per customer

Annual retention spending (R): \$600 per customer

Monthly retention (r): 95%

Discount rate (d): 3%

-\$6,800

\$3,400

\$1,931.25

\$1,781.25

6. Consider this streaming music subscription service. What is the CLV for an average customer?

Billing: Beginning of the month

Monthly margin (M): \$2 per customer

Annual retention spending (R): \$12 per customer

Monthly retention (r): 50%

Discount rate (d): 2%

### 7. In May, Gorgeous Gowns acquired 500 customers. What is the present value of total net profit in September?

Monthly margin (M): \$125 per customer

Monthly retention spending (R): \$25

Monthly retention rate (r): 50%

\$25,000

\$3,125

\$6,250

\$12,500

### 8. In June, Sharp internet services had 10,000 customers. What is the present value of total net profit in September?

Monthly margin (M): \$60 per customer

Monthly retention spending (R): \$10

Monthly retention rate (r): 75%

\$210,937.50

\$158,203.13

\$375,000.00

\$281,250.00

### 9. In January, 300 people sign up for a dance studio membership. What is the present value of total net profit from January to May for this cohort of dancers?

Monthly margin (M): \$175 per customer

Monthly retention spending (R): \$25

Monthly retention rate (r): 70%

\$124,789.50

\$45,000.00

\$225,000.00

\$10,804.50

9. In July, 400 people sign up for a monthly music streaming service. What is the present value of total net profit from July to October for this cohort of music lovers?

Monthly margin (M): \$15 per customer

Monthly retention spending (R): \$7

Monthly retention rate (r): 95%

\$11,871.60

### 10. You are trying to maximize CLV based on the following information. How much should you spend on marketing and retention (R) to maximize CLV?

M = \$50

d = .07

If R = \$25, then r = 75%

If R = \$20, then r = 60%

If R = \$15, then r = 65%

If R = \$10, then r = 50%

If R = \$5, then r = 45%

\$20

\$10

\$15

\$25

\$1.00