Question

Eastern Motors Auto Dealership wanted to estimate the average CLV over a 5 year time horizon of a customer who purchases a new vehicle. The average vehicle sells for $26,400 and has a margin of 12%. Based on historical averages, 79% of people buying a new vehicle at Eastern will return for service 7 times over the next 5 years. Though it varies considerably, Eastern generates approximately $86 in margin on each service visit after accounting for parts and direct labor costs. What is the estimated 5 year value of the service component of a customer who purchases a new vehicle at Eastern Motors?

Answer 1

Calculate the estimated 5 year value of the service component of a customer who purchases a new vehicle at Eastern Motors:

Based on the historical averages, a new vehicle will come for service 7 times in a period of 5 years and at each service, it generates $86 in margin after accounting for parts and direct labor costs.

Hence, the estimated 5 year value of the service component of a customer who purchases a new vehicle at Eastern Motors is $602 ($86 per service * 7 times of service).