Jones Blair management is considering focusing on the DFW professional painters. There are 400 professional painters in this area who buy paint worth $14.4 million per year. Average gross margin for Jones Blair is 35% and it currently has $4.2 million sales in this segment. Current retention rate of painters is 75% and their revenue is stable over time.

a. The director of marketing proposes a one-time spending of $500,000 to directly market to painters. How many painters would you need to acquire to make this investment pay off in the long term (assume an infinite horizon)?

b. The marketing director also wants to find out the maximum amount of money he should spend to increase the retention rate of the current professional customers from 75% to 85%

Assume a discount rate of 12%.