Q1 Using CLV to evaluate spending on customer acquisition and customer retention Brushes Buckets, a paint wholesaler, sells paint to professional painters On average, each painter spends $38,333 per year on paint The average gross margin for Brushes Buckets is 35 , and it currently has $4 2 million of sales in this segment The current retention rate of each painter is 80 , and the revenue per painter is stable over time (Assume a 10 discount rate ) The marketing director proposes spending $1,000,000 for a one time direct marketing campaign to acquire new professional painters How many painters would Brushes Buckets need to acquire to make this investment profitable in the long term (10 points) Hint Use CLV to help calculate the breakeven point CLV m r (1 i r) r retention rate i retention rate m annual profit or contribution margin b The marketing director also wants to determine the maximum amount of money Brushes Buckets should spend to increase the retention rate of the current professional painters from 80 to 90

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Q1: Using CLV to evaluate spending on customer acquisition and customer retention. Brushes & Buckets, a paint wholesaler, sells paint to professional painters. On average,

Q1: Using CLV to evaluate spending on customer acquisition and customer retention.

Brushes & Buckets, a paint wholesaler, sells paint to professional painters. On average, each painter spends $38,333 per year on paint. The average gross margin for Brushes & Buckets is 35%, and it currently has $4.2 million of sales in this segment. The current retention rate of each painter is 80%, and the revenue per painter is stable over time. (Assume a 10% discount rate.)

The marketing director proposes spending $1,000,000 for a one-time direct marketing campaign to acquire new professional painters. How many painters would Brushes & Buckets need to acquire to make this investment profitable in the long term? (10 points)

Hint: Use CLV to help calculate the breakeven point.

CLV = m [ r / (1+i-r)]

r= retention rate i = retention rate m = annual profit or contribution margin

b. The marketing director also wants to determine the maximum amount of money Brushes & Buckets should spend to increase the retention rate of the current professional painters from 80% to 90%.