Calyx & Corolla
... of $32.84 with no acquisition cost because he is a returning customer. Recipient of flowers has a profit of $34.76 for the first year. However, after deducting the $32 dollars acquisition costs, the net profits become $2.76 in the first year. The profits for customer from the rented mailing lists are $36.28. However, net profits drops to -$3.72 because of the $40 acquisition costs, which include an extra $0.08 per customer for renting the mailing lists over the $0.32 catalog cost. The low response rate, 1.5%, contributed the most to the high acquisition costs in the last two customers because C&C could have invested less in catalogs and mailings if the response rate is higher. For example, a 1.5% response rate means that C&C has to send 100 catalogs to receive 1.5 orders while a response rate of 5% means C&C only has to send 30 catalogs to receive 1.5 orders. Starting from year 2, assuming zero discount rate, the profits are the same every year across all groups because of the identical retaining costs. Thus, the prior customers group is the most profitable group in terms of LTV. The profitability is largely due to the absent of acquisition cost and the high retention rate. The LTV provides useful information on how the management of C&C can control the marketing expense and sales profits. The management can use the LTV results and the profits analysis in the exhibit to evaluate their current sales and marketing costs and project to whom they want to market and how much to invest in the marketing campaigns. The profit analysis shows an average profit margin of $36.68. It means that to make a profit, the acquisition cost cannot be more than $36.68 minus the operating expenses. Therefore, with an acquisitioning cost of $40, m...