Unit sales 5266 Revenues $15.16 Cost of goods sold $7.80 Gross margin $7.36 Promotion cost All in 000' Consumer promotion $4,000 Other trade spending $7,000 Feature price reductions $5,000 Total promotional cost (a) $16,000 Advertising cost (b) $15,000 Total other costs (a+b) $31,000 Total other cost per unit $5.89 Unit margin on pitcher scale $1.47 Assumption Provided each customer buys 2.5 filter per year and retention rate is 80%
(per unit) (per unit) (per unit)
(per unit)
So, each customer buys 0.8*2.5= 2 filters per year Filters Unit sales 27413 Revenues $4.10 (per unit) Cost of goods sold $2.05 (per unit) Gross margin for 2 filters $2.05 (per unit) Gross margin for 2 filters $4.10 Promotion cost All in 000' Consumer promotion $1,000 Feature price reductions $1,000 Other trade spending $1,000 Total promotional cost $3,000 Advertising cost $15,000 Total other costs $18,000 Total other cost per unit $0.66 Total other cost for 2 filters $1.31 Margin on 2 pitcher scale filters $2.79 PV of pitcher filter sales for 5 years Net cash flow from one customer Cost of capital NPV of the cash flows from the customer Add pitcher acquisition margin CLV of pitcher customer
Year1
Year2 $2.79 15% $9.34 $1.47 $10.81
Year3 Year4 Year5 $2.79 $2.79 $2.79 $2.79
CLV for Faucer mount Filters Customer Acquisition Unit sales (in 000') 350 Revenues $27.29 Cost of goods sold $15.00 Gross margin $12.29 Promotion cost (d) $7,000 Advertising cost (f) $5,000 Total other costs (d+f) $12,000 Total other costs per unit $34.29 Unit margin on faucet mount -$22.00 Assumption Provided each customer buys 1.25 filter per year and retention rate is 80% So, each customer buys 0.8*1.25= 1 filter per year Contribution Contribution from retention $3.00 No promotion/ Advertising 0 Margin on 1 faucet mount filters $3.00
PV of faucet mount filter sales for 5 years Net cash flow from one customer Cost of capital NPV of the cash flows from the customer Add faucet mounted acquisition margin CLV of faucet mounted customer
Year1 $3.00 15% $10.06 -$22.00 -$11.94
(per unit) (per unit) (per unit) ( in 000') ( in 000') ( in 000') (per unit)
