A company has 100,000 subscribers. There are 3
types of subscription: a $99 version, a $350
version and a $1000 version. The first group gives
50% of the customers, the second gives 30%, and
the third gives 20%. The average subscription
expectancy is 1 year for the low-price package, 3
year for the medium priced package and 5 years
for the high priced package. The average cost of
capital for the company is 10%.
• What is the average customer value of each type?
• What is the value of the customer base?
A company has 100,000 subscribers.
There are 3 types of subscription:
a $99 version, 50% - 50k 1 yr = 4,950,000
a $350 30% - 30 k - 3 yrs = 10,500,000
a $1000 version. 20% - 20k - 5 yrs = 20,000,000
----------------
total income: 35450000
The first group gives 50%
of the customers,
the second gives 30%,
and
the third gives 20%.
The average subscription
expectancy is 1 year for the low-price package,
3 year for the medium priced package and 5 years
for the high priced package.
The average cost of capital for the company is 10%. = 3,545,000
• What is the average customer value of each type?
• What is the value of the customer base? 35,450,000?
To find the average customer value of each type, we need to calculate the net present value (NPV) of each subscription type. The NPV is the sum of the present values of all the cash flows associated with each subscription type.
Let's start with the $99 version (low-price package):
Given:
- Number of subscribers: 50,000 (50% of 100,000)
- Subscription expectancy: 1 year
- Average cost of capital: 10%
To calculate the average customer value, we need to find the present value of the expected cash flows from each subscriber. In this case, the cash flow is the subscription fee of $99 per year.
Step 1: Calculate the present value factor
The present value factor can be calculated using the formula: PV factor = 1 / (1 + r)^n, where r is the discount rate (average cost of capital) and n is the number of years.
PV factor = 1 / (1 + 0.1)^1 = 1 / 1.1
Step 2: Calculate the present value of the cash flows
Present value (PV) = Subscription fee * PV factor
PV = $99 * (1 / 1.1)
Step 3: Calculate the average customer value
Average customer value = PV * Number of subscribers
Average customer value = PV * 50,000
Similarly, we can calculate the average customer value for the other two subscription types using their respective numbers of subscribers and subscription expectancies.
For the $350 version (medium priced package):
- Number of subscribers: 30,000 (30% of 100,000)
- Subscription expectancy: 3 years
For the $1000 version (high priced package):
- Number of subscribers: 20,000 (20% of 100,000)
- Subscription expectancy: 5 years
Once we have the average customer value for each subscription type, we can find the value of the customer base by multiplying the average customer value by the total number of subscribers (100,000).
I will now calculate the average customer value for each type and the value of the customer base.