Assignment task: You have been assigned the task of having to manage a portfolio of your own, with which you have to acquire 20,000 customers and by doing so create a positive impact for the company.
You know all about your customers as you have been observing these types of customers for years, and based on the data that you have, you know how that they behave.
You have the following data on your customers that you are going to use to prove that you know how to create value.
Your customers have the following long term (3 year) characteristics...
1) They spend on average about 250 per year, increasing 10% per year
2) They love you, but you only retain 40% of them in year 2, and 45% in year 2
3) Your variable costs are consistent at 55% of your revenue
4) You spend your money based on channel to acquire. You use digital for 60% of your marketing mix, and 40% for a more traditional approach. It costs $20 in total to acquire each customer.
5) Your treasury department has told you that inflation sits at 4%, and there is a market risk of 2. This should help you to determine your discount rate.
What value do you create by acquiring these customers? Build an excel spreadsheet. Based on your information, are you doing a good job?
Of course, we can never leave well enough alone. Can you improve your results? You decide that you are going to test this with a cross sell promotion to all customers starting in year 2. You determine that you can be successful at 4% in year 2 and 6% in year two, because people are really starting to love your mojo. You earn an extra $20 per customer responding when you do this upsell, so it helps your revenue. All of your retention and spending rates stay the same for customers who do not respond.
Build the model, and determine whether you're a hero or a heel. How can you tell?