Lefties Auto Repair is trying to figure out the CLV for their customers. This wi

Question

Lefties Auto Repair is trying to figure out the CLV for their customers. This will help them know how much they should spend to keep a customer and/or acquire a new customer. On average a repair is $150 and most customers come in 2 times a year. According to their records, a customer is retained for 3 years. Using the simplified equation below, what is the CLV of the typical Lefties’ customer? CLV = (Average Repair x # of visits/year) x Years Retained

Based on the CLV, if Lefties offers customers a $25 discount on each service, how long does he need to retain customers so that the discount pays off? Round to the nearest year.

Explanation / Answer

CLV = (Average Repair * Number of visits/year) * Years Retained

Average current cost of repair = $150

Number of customer visits a year = 2

Number of years a customer is retained = 3

Current CLV of the typical Lefties’ customer = (150 * 2) * 3

= $900

If a discount of $25 is offered, the new cost of repair = $125

Let the number of years that the Lefties would need to retain their customers be equal to X.

Putting these values in the formula for CLV we get,

CLV = (125 * 2) * X

CLV is taken as $900 to find out when the discount would pay off.

900 = 250 * X

X = 3.6 years or 4 years approximately

Thus lefties would need to retain customers for at least 4 years so that the discount pays off.

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