Question

A local restaurant prides itself in having a high number of return customers. To build loyalty, the owner of the restaurant offers a dinner (value $20) to any customer who purchases a meal during 10 previous visits. Meals purchased are tracked by stamps on a Loyalty Card. At the end of a month, the owner decides to calculate the customer retention cost.

The data is the following:

Number of customers at Start of Month = 10

Number of Customers at End of Month = 120

Number of New Customers = 40

Value of Free Dinners Redeemed = $240

What was the Customer Retention Cost?

A. $3
B. $12
C. $2
D. $6

Answer 1

Answer:

The correct option is A. $3

Explanation:

The customer retention cost is determined by cosnidering the number of customer retained at the end of the month; and the value used over the customers.

It is determined as  follows:

$\begin{aligned}\text{Customer Retention Cost}&=\frac{\text{Value of Free Dinners Redeemed}}{\text{Number of Customer Retained}}\\&=\frac{\ 240}{80}\\&=\ 3\\ \end{aligned}$

$\begin{aligned}\text{Number of Customer Retained}&=\text{Number of Customers at End of Month}\\-&\text{Number of New Customers}\\&=120-40\\&=80\end{aligned}$

Answer 2

Assuming a  local restaurant prides itself in having a high number of return customers the Customer Retention Cost will be $3

Using this formula

Customer Retention Cost=Value of Free Dinners Redeemed/Number of Customers at End of Month - Number of New Customers

Where:

Value of Free Dinners Redeemed=240

Number of Customers at End of Month=120

Number of New Customers=40

Let plug in the formula

Customer Retention Cost=240/(120-40)

Customer Retention Cost=240/80

Customer Retention Cost=$3

Inconclusion assuming a  local restaurant prides itself in having a high number of return customers the Customer Retention Cost will be $3

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