Keep On Truckin Logistics: Customer and Relationship Value
(1) Keep On Truckin Logistics has just won the business of Aardvark Artichokes. Keep On’s annual revenues from the relationship is expected to be $1,200,000 per year with pre-tax operating margins of 20%. Keep On’s turnover ratio is 3 and its cost of capita is .10. It’s tax rate is 30%. On average, Keep On loses 30 percent of its customers each year.
(a) What is Aardvark’s customer lifetime value?
(b) What is Aardvark’s relationship value?
(2) Keep On is considering the installation of a customer relationship management system. It believes that such a system will increase service levels and that its customer turnover rate will decline to 20% per year. What is the incremental effect on the value of the Aardvark relationship?
(3) Keep On estimates that the cost per customer of the customer relationship management system will be $100,000. What is the return on investment for the new system?