3. Lets start the CLV analysis by making some calculations using the formula provided in the text.

For this calculation, M = 15.49 (price of $19.99 less $4.50 variable cost per unit ). For this exercise, we will assume the discount rate, d is 12% per year, or 1% per month.

a. What is the CLV if we use the contribution margin per unit sold ($15.49) for M, at the current retention rate of 99%? Do this calculation using CLV = {$M x [ r / (1+ d r)]}. For "d", use 1% per month (12% per year /12 months per year).

b. What happens to CLV when the retention rate decreases? Using the contribution margin ($15.49) for M, calculate CLV at both a 95% and a 90% retention rate, and compare these to the 99% retention rate used above.

c. Summarize your observations of the above calculations in a single sentence, and in a second sentence, discuss the implications of the relationship of retention rate to CLV and long-term profitability.