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Customer lifetime Value \{CLV) refers to the expected financial contribution from a particular customer to the firm's profits over the course of their entire relationship. To estimate CLV, firms use past behaviors to forecast future purchases, the gross margin from these purchases, and the costs associated with servicing the customers . Some costs associated with maintaining customer relationships include communicating with customers through advertising, personal selling. or other promotional vehicles to acquire their business initially and then retain them overtime. CUSTOMER LIFETIME VALUE CUSTOMER LIFETIME VALUE In the following activity, we will use the Customer lifetime Value calculator to measure the value of retaining customers given different sets of parameters. We will use the firm's estimate of a customer's lifetime with the firm, expected profits per customer, acquisition cost, retention rate and annual discount rate ffor the time value of money) to make the calculations. Jump Start Fitness Center has received a complaint from a customer who believes her iPhone was stolen from the personal trainer's supply area during her session. She has been using the fitness center for two months, and has, until now been very impressed by the. service. Management is sure that the phone was not stolen, but needs to know whether it is worth retaining her as a customer if it means replacing her $680 iPhone. The average cost per customer for advertising and introductory rates is $500 and the yearly profit earned on each membership, held for an average of 3 years, is S1,200. Due to very high turnover Jump Start assumes that it will lose 50% of its customers each year, and uses a 10% discount rate per year to account for the- time value of money. For simplicity, Jump Start assumes all profits are accrued at the beginning of the year. CUSTOMER LIFETIME VALUE CALCULATOR On the other side of the street is a community run ladies-only gym, called Sculptress. Sculptress has branches throughout the city and spends an average of $50 per member on local media advertising. Their policy is to provide an inexpensive, friendly, no frills service. As such, for them to be successful, they need to have lots of members. Sculptress's profits are $600 per customer per year for an average of 3 years. They assume that they will lose 5% of their members each year and use a 10% discount rate per year to account for the time value of money. For simplicity, Sculptress assumes all profits are accrued at the beginning of the year