IMPORTANT

1. Retention % generally increases year over year. For example, maximum number of people will leave in the initial p
2. In the below table, I considered the first year defection rate (1-retention) as 25%. There after I assumed that 90%
3. Number of customers in Year 1 = Number of customers in year 0 * retention rate. Number of customers for subseq
4. Revenue too need to considered as increasing per year. In this case I considered as 2% per year
5. Variable cost can be considered as increasing at the same rate as revenue. - 2%
6. Net Margin = Margin - Acquisition cost
7. Total Cost or profit = Cost or Margin * Num of Customers
8. Interest rate should be considered a reasonable one. If not given, I suggest you to take the Average consumer loan
9. So, I am considering 6% per annum.
10. Present Value = (Margin / (1+interest)^term)

YEAR 0 1 2 3 4 5

Num of customers 100.00 75.00 58.13 46.35 37.91 31.69

Defection % 0.00 0.25 0.23 0.20 0.18 0.16
Retention % 1.00 0.75 0.78 0.80 0.82 0.84
Revenue per
customer 100.00 102.00 106.12 112.62 121.90
Revenue and
Variable cost
increase 1.00 1.02 1.04 1.06 1.08
Variable Cost per
customer 70.00 71.40 74.28 78.83 85.33
Margin per
customer 30.00 30.60 31.84 33.78 36.57
Acquisition cost per
customer 40.00 0.00 0.00 0.00 0.00 0.00
Net Margin -40.00 30.00 30.60 31.84 33.78 36.57
Total Cost or Profit
(MARGIN) -4000.00 2250.00 1778.63 1475.76 1280.67 1158.86
interest 6% 6% 6% 6% 6% 6%
Present Value -4000.00 2122.64 1582.97 1239.08 1014.41 865.97

LIFETIME VALUE OF CUSTOMER = Sum of all present values

595654.62
e will leave in the initial periods
fter I assumed that 90% of the customers will remain
r of customers for subsequent years is calculated the same way

e Average consumer loan rate in the market.

6 7 8 9 10 11 12

27.01 23.42 20.62 18.40 16.62 15.17 13.98

0.15 0.13 0.12 0.11 0.10 0.09 0.08
0.85 0.87 0.88 0.89 0.90 0.91 0.92

134.59 151.57 174.10 203.99 243.79 297.17 369.50

1.10 1.13 1.15 1.17 1.20 1.22 1.24

94.21 106.10 121.87 142.79 170.65 208.02 258.65

40.38 45.47 52.23 61.20 73.14 89.15 110.85

0.00 0.00 0.00 0.00 0.00 0.00 0.00

40.38 45.47 52.23 61.20 73.14 89.15 110.85

1090.59 1065.01 1077.08 1126.16 1215.51 1352.54 1549.78

6% 6% 6% 6% 6% 6% 6%
768.83 708.29 675.77 666.57 678.74 712.50 770.19
 13 14 15 16 17 18 19

12.99 12.17 11.47 10.88 10.38 9.94 9.57

0.07 0.06 0.06 0.05 0.05 0.04 0.04
0.93 0.94 0.94 0.95 0.95 0.96 0.96

468.61 606.20 799.87 1076.52 1477.83 2069.31 2955.49

1.27 1.29 1.32 1.35 1.37 1.40 1.43

328.03 424.34 559.91 753.56 1034.48 1448.52 2068.84

140.58 181.86 239.96 322.95 443.35 620.79 886.65

0.00 0.00 0.00 0.00 0.00 0.00 0.00

140.58 181.86 239.96 322.95 443.35 620.79 886.65

1826.72 2212.89 2752.87 3514.29 4600.88 6173.75 8486.76

6% 6% 6% 6% 6% 6% 6%
856.44 978.76 1148.68 1383.39 1708.60 2162.93 2804.98
 20 21 22 23 24 25 26

9.25 8.97 8.72 8.51 8.32 8.15 8.01

0.03 0.03 0.03 0.02 0.02 0.02 0.02
0.97 0.97 0.97 0.98 0.98 0.98 0.98

4305.59 6397.88 9697.05 14991.44 23640.00 38023.45 62381.50

1.46 1.49 1.52 1.55 1.58 1.61 1.64

3013.91 4478.52 6787.94 10494.01 16548.00 26616.42 43667.05

1291.68 1919.36 2909.12 4497.43 7092.00 11407.04 18714.45

0.00 0.00 0.00 0.00 0.00 0.00 0.00

1291.68 1919.36 2909.12 4497.43 7092.00 11407.04 18714.45

11946.07 17211.70 25373.58 38261.30 58997.37 93001.24 149840.00

6% 6% 6% 6% 6% 6% 6%
3724.84 5062.91 7041.30 10016.70 14571.08 21669.16 32936.33
 27 28 29 30

7.88 7.76 7.66 7.57

0.02 0.01 0.01 0.01
0.98 0.99 0.99 0.99

104390.33 178182.45 310219.96 550902.47

1.67 1.71 1.74 1.78

73073.23 124727.71 217153.97 385631.73

31317.10 53454.73 93065.99 165270.74

0.00 0.00 0.00 0.00

31317.10 53454.73 93065.99 165270.74

246694.75 414958.52 713000.47 1251268.45

6% 6% 6% 6%
51156.59 81178.39 131589.04 217858.51
YEAR 0 1 2 3 4 5

Num of customers 100 90 80 72 60 48

Revenue per
customer 100 110 120 125 130
Variable Cost per
customer 70 72 75 76 78
Margin per
customer 30 38 45 49 52
Acquisition cost per
customer 40
Total Cost or Profit
(MARGIN) -4000 2700 3040 3240 2940 2496
interest 10% 10% 10% 10% 10% 10%
Present Value -4000.00 2454.55 2512.40 2434.26 2008.06 1549.82

Margin per customer = Revenue - Variable Cost

Total Cost or profit = Cost or Margin * Num of Customers
Interest rate = 10%

Present Value = (Margin / (1+interest)^term)

NOTE
1. Number of customers remaining from initial 100 customers each year drops. In this case, retention % is different f
2. 10% discount rate is little high
3. Variable cost as it says in the name, is variable.
 6 7 8 9 10

34 23 12 6 2

135 140 142 143 145

79 80 81 82 83

56 60 61 61 62

1904 1380 732 366 124

10% 10% 10% 10% 10%
1074.76 708.16 341.48 155.22 47.81

retention % is different from each year