 Shannon’s Brewery currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $29 per visit. Shannon‘s current variable cost of goods sold is 50% of sales. The customer retention rate per month is 0.79, based on data collected from its website and an analysis of credit card receipts. Its current cost of capital for borrowing and investing is about 12% per year or 1% per month. What is Shannon’s approximate CLV for its average customer? Compute your answer to the nearest penny.

To calculate the Customer Lifetime Value (CLV), we will use the following formula:

\[
CLV = \frac{m \cdot r}{1 + i - r}
\]

Where:
- $ m $ = margin per customer per month
- $ r $ = retention rate per month
- $ i $ = discount rate per month (cost of capital)

### Step-by-Step Calculation:

#### 1. **Average customer revenue per month:**
   Each customer visits twice a month and spends $29 per visit, so the monthly revenue per customer is:
   \[
   \text{Revenue per customer per month} = 2 \times 29 = 58 \text{ dollars}
   \]

#### 2. **Margin per customer per month:**
   The variable cost of goods sold is 50% of sales, meaning the profit margin is also 50%. Therefore, the monthly margin per customer is:
   \[
   m = 58 \times 0.5 = 29 \text{ dollars}
   \]

#### 3. **Retention rate:**
   The customer retention rate per month is given as $ r = 0.79 $.

#### 4. **Discount rate:**
   The discount rate (cost of capital) per month is $ i = 0.01 $ (1% per month).

#### 5. **Plugging values into the CLV formula:**

\[
CLV = \frac{29 \times 0.79}{1 + 0.01 - 0.79}
\]

First, calculate the denominator:
\[
1 + 0.01 - 0.79 = 0.22
\]

Now, calculate the CLV:
\[
CLV = \frac{29 \times 0.79}{0.22} = \frac{22.91}{0.22} \approx 104.14 \text{ dollars}
\]

Thus, the approximate **Customer Lifetime Value (CLV)** for Shannon's Brewery is **$104.14**.

---

Would you like further explanation on this? 

Here are 5 questions to expand on this:

1. How does increasing the retention rate impact CLV?
2. What effect does lowering the discount rate have on CLV?
3. How would a higher variable cost affect the overall CLV?
4. How can Shannon’s Brewery improve customer retention to boost CLV?
5. What are some ways Shannon's Brewery can decrease the cost of capital?

**Tip:** Retention rate has a significant effect on CLV; even a small increase can lead to a large improvement in the customer's lifetime value.

Shannon’s Brewery currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $29 per visit. Shannon‘s current variable cost of goods sold is 50% of sales. The customer retention rate per month is 0.79, based on data collected from its website and an analysis of credit card receipts. Its current cost of capital for borrowing and investing is about 12% per year or 1% per month. What is Shannon’s approximate CLV for its average customer? Compute your answer to the nearest penny.

Discover how to calculate the Customer Lifetime Value (CLV) for Shannon's Brewery. This detailed solution explains key financial concepts, including the retention rate, profit margin, and discount rate. Compute the CLV using the formula with a step-by-step guide. Suitable for students in Grades 10-12.

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