This document discusses the value of a loyal customer (VLC) for several companies. It defines VLC as the total revenue or profit generated by a customer over their lifetime. The VLC is calculated using a formula that considers revenue per unit, contribution margin, repurchase frequency, and buyers' life cycle. Quantifying a customer's VLC allows a company to determine the total market value gained or lost by winning or losing customers. Examples are provided to show how VLC is calculated for Sam's Club, Costco, and other companies based on membership fees, retention rates, and average customer lifetimes.

1. VALUE OF A LOYAL
CUSTOMER
Luis Sicairos, Acela Gudino, Andrea Lopez,
Amanda Sabbah, Denise Arias

2. Definition
⦿ VLC quantifies the total revenue or profit
each target market customer generates
over the buyers life cycle

3. VLC= (P)(CM)(RF)(BLC)
⦿P= revenue per unit
⦿CM= contribution margin to profit and
overhead- expressed as a fraction
⦿RF= repurchase frequency- the number
of purchases per year
⦿BLC= buyers life cycle

4. Importance
⦿ By multiplying the VLC times the
absolute number of customers gained or
lost, the total number market value can
be found.

5. Quantifying VLC at Sam’s Club
⦿ žMemberships
● $45 Savings/Business or $100 Plus
⦿ Retention rate of 89.3% at Club #6610
⦿ Benefits for Members
● —Instant Savings Book that comes out every
other month
● Cash Back Rewards Program for Plus
Members

6. VLC for Sam’s Club
⦿If the customer retention rate for Sam’s
Club is 89.3% than the average
customer defection rate is 0.107 or
10.7%. The average buyers life cycle is
1/0.107= 9.35 years.
⦿VLC= ($100 membership)(0.935 years)
($100)(1/0.107)
⦿VLC= $87,383.18 over the buyers life
cycle
*Membership is Pure Profit

7. Quantifying VLC at Costco
⦿ žMembership
● —$55 for Gold/Business $110 for Executive
⦿ žRetention Rate 2013 89.7% increased
to 89.9% YTD
⦿ žBenefits
● —Coupon Book
● —Cash Rewards for Executive Membership

8. VLC for Costco
⦿If the customer retention rate for Costco
is 89.9% than the average customer
defection rate is 0.101 or 10.1%. The
average buyers life cycle is 1/0.101=
9.90 years.
⦿VLC= ($110 membership)(0.990 years)
($110)(1/0.101)
⦿VLC= $118,603.96 over the buyers life
cycle
*Membership is Pure Profit

9. ULTA Beauty Salon

10. Café Rio

11. Sonora Tires

12. Skechers

13. European Wax Center