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Assess Customer Value with Varied Contract Terms and Costs

Capital OneData Scientist · Onsite
MediumData ScientistOnsiteAnalytics & Experimentation

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Evaluates subscription contract unit economics across free periods, service costs, marketing costs, churn penalties, and fixed overhead. Strong answers compute customer value, portfolio value, and break-even acquisitions.

Scenario

Network-service provider economics: assess customer value under different contract terms and cost structures.

Question

With revenue $40/month (first 3 months free), service cost $25/month, install cost $35, and marketing & overhead $120 per new customer, what is the net value of a customer on a 15-month contract (10 K acquisitions/year)? How does the net value change if the contract term increases to 18 months? Explain. If term = 21 months, 10 % churn incurs a $100 penalty, marketing cost falls to $20 variable plus $1 M fixed overhead, how many customers are needed to break even?

Hints

Lay out cash flows month-by-month, separate variable and fixed costs, include churn penalties.