Netflix: Customer Lifetime Value

STEP 1: Customer Acquisition costs (CPA) One way to increase the companys profitability is to decrease Cost Per Acquisition (CPA), which is the cost to acquire a new customer (subscriber). For example, Netflix uses pay-per-click (PPC) Google search ads, social media advertising and event marketing, and email marketing channels to acquire customers.

Use these metrics as assumptions for Netflixs spend per channel: Assume these numbers for the number of conversions per channel: PPC: $90 mln PPC: 2 mln Social media ads: $60 mln Social media ads: 1.5 mln. Special events: $70 mln Special events: 1 mln. Email marketing: $20m Email marketing: 1.5 mln CPA measures how much they spend to acquire and set up one customer. Calculate the CPA of every channel and average total CPA for Netflix using this formula:

STEP 2: CUSTOMER LIFETIME VALUE

Customer Lifetime Value (CLV) informs companies about how much a customer is worth to them. CLV is especially important for companies like Netflix that want customers to continue subscription services. CLV focus on the LONG TERM value a single customer brings to the company. What is the CLV for Netflix? Here are numbers to use to calculate metrics for this assignment: Customers pay $12.99/month for a subscription Total operating costs to serve one customer = $8.99 Profit Margin = (Price - Operating costs) / Price The average subscription length is 25 months Lifetime Revenue (LTV) = Price * Subscription length. Customer acquisition cost (CPA) = Use your calculation (total average CPA) from STEP 1 CLV = Lifetime Revenue * Profit Margin - CPA Submit a document with your step-by-step calculations, including CPA, Profit Margin and LTV You can use the attached Excel framework for calculations but please do not submit it for grading