A certain service company spends $200 to recruit each new client. At the beginning of every...
A certain service company spends $200 to recruit each new client. At the beginning of every month, the company stands to make a profit of $10 per active customer. Given that the monthly churn rate is 1.18%, what is the expected value of each client.
Homework Answers
cost of client = 200
profit in 1 year per customer = 10 x 12 = 120
churn rate = 1.18 %
active rate = 98.82 %
Expected value = probability of churn x value of churn + probability of active x value for active
= 0.0118 x (200) + 0.9882 x (200 - 120 )
= 81.416
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