Imagine you currently work in the marketing department for a company that sells survey software for other businesses to use to conduct research. All clients pay an annual subscription fee of $2,000 per year, which provides unlimited use of the survey software.
Your company also conducts research surveys on the client’s behalf as an additional service. This service includes recruiting participants, administering the survey, and analyzing the survey data. In addition to the annual $2,000 subscription fee, this additional service costs $2,000 for each survey conducted. On average, clients utilize this additional service to host two surveys per year. While there are no major issues with the company’s product, your company struggles to retain clients. On average, clients retain for two years.
Your director is concerned about the budget and how much is being allocated to marketing. Currently, 1 million dollars per year is being spent on advertising and other marketing-related activities, yet the company is recruiting an average of only 500 new clients per year. To present an accurate budget to your director, use the following formulae to compute Customer Lifetime Value (CLV) and Cost of Acquiring a Customer (CAC):
CLV = (Average Purchase Value) x (Purchases in a single year) x (Average number of years retained)
CAC = (Total number of dollars spent to acquire customers) / (Total number of customers acquired)
Write a 525- to 700-word email to your director, outlining the value of the clients compared to the marketing investments. Use the concept of the CLV as support. Ensure you complete the following in your email:
- Determine the company’s current CLV and CAC.
- Conclude by recommending whether or not the marketing spending and costs are within an acceptable range.
- Explain why the CLV is important to consider for marketing investments and how it supports your conclusion.
- Recommend ways to increase CLV from marketing perspective.
- Recommend improvements that can support the ratio between CAC and CLV.
- Explain how these improvements can influence these calculations.
Format your references according to APA guidelines.