MCQs On CLV 2

Name:
(MCQs) on Customer Lifetime Value (CLV), covering both qualitative and numerical
aspects:
Qualitative Questions
1. What does Customer Lifetime Value (CLV) represent?

o A) The average amount spent per purchase
o B) The total revenue generated from a customer over their entire relationship
with the company
o C) The profit margin for a specific product
o D) The total number of transactions a customer makes
Answer:
2. Which of the following is a primary use of CLV?

o A) Determining a company’s stock price
o B) Estimating how much to spend to acquire new customers
o C) Setting employee salaries
o D) Calculating daily operational costs
Answer:
3. Which of the following is not a component of the CLV formula?

o A) Retention rate
o B) Acquisition cost
o C) Discount rate
o D) Marketing costs
Answer:
4. Why is retention rate important in CLV calculation?

o A) It determines how much profit the company makes per product
o B) It shows how well the company keeps customers over time
o C) It helps calculate employee retention
o D) It only applies to one-time sales transactions
Answer:
5. How does increasing the retention rate affect CLV?

o A) Increases CLV
o B) Decreases CLV
o C) Has no effect on CLV
o D) Makes the calculation invalid
Answer:
6. What is a typical application of CLV in marketing strategy?

o A) Product development
o B) Forecasting customer behavior and segmenting customers
o C) Setting interest rates
o D) Hiring more employees
Answer:
7. CLV helps businesses focus on which type of profitability?

o A) Short-term
o B) Long-term
o C) Immediate
o D) Weekly
Answer:
8. Which of the following best describes a “cohort” in CLV analysis?

o A) A group of customers who make the same purchases
o B) A group of customers acquired at the same time
o C) A set of products bought by a single customer
o D) Employees working on customer retention
Answer:
9. What is a common mistake when calculating CLV?

o A) Ignoring marketing costs
o B) Using Net Present Value (NPV)
o C) Including acquisition costs
o D) Including discount rate
Answer:
10. Which business model makes it harder to calculate CLV accurately?

o A) Subscription-based models
o B) Contractual models
o C) Non-contractual models (e.g., grocery stores)
o D) SaaS (Software as a Service)
Answer:
Numerical Questions
11. If a customer spends $50 per month, remains a customer for 20 months, and the
gross margin per customer is $20, what is the CLV (ignoring discount rates and
retention costs)?
o A) $200
o B) $400
o C) $1000
o D) $4000
Answer:
12. A company’s retention rate is 80%, and the monthly gross margin per customer
is $25. If the company wants to calculate CLV with a discount rate of 10%, what
would be the CLV formula?
o A) CLV = $25 × (1 + 0.10) / (1 + 0.10 - 0.80)
o B) CLV = $25 × (1 + 0.80) / (1 + 0.10 - 0.80)
o C) CLV = $25 × 1 / (1 + 0.10)
o D) CLV = $25 × (1 + 0.10) / (1 + 0.80)
Answer:
13. If a customer spends $1000 annually and the gross margin is 50%, with an
average customer lifespan of 5 years, what is the CLV?
o A) $1000
o B) $2500
o C) $5000
o D) $250
Answer:
14. A company has a retention rate of 90% and a discount rate of 5%. If the
contribution per customer is $50, what is the approximate CLV?
o A) $500
o B) $750
o C) $950
o D) $1000
Answer:
The retention rate of a company drops from 90% to 85%, while the gross margin
stays the same at $40. What happens to the CLV?
o A) CLV increases
o B) CLV decreases
o C) CLV stays the same
o D) CLV becomes zero
Answer:
15. If the retention rate is 85%, gross margin per customer is $30, and the discount
rate is 10%, calculate the CLV.
o A) $255
o B) $345
o C) $385
o D) $450
Answer:
16. A business spends $5 per customer per month on marketing and the customer
generates a gross margin of $30 per month. The retention rate is 95% with a
discount rate of 5%. What is the CLV?
o A) $1000
o B) $300
o C) $570
o D) $5700
Answer:
17. A company sees a retention rate of 85% and spends $20 on retention efforts each
year. If the gross margin is $200 and the discount rate is 5%, calculate the CLV.
o A) $785
o B) $470
o C) $585
o D) $890
Answer:
18. What happens to the CLV if retention costs increase but the retention rate
remains constant?
o A) CLV increases
o B) CLV decreases
o D) CLV becomes invalid
Answer:
19. If the retention rate is 100%, what happens to the CLV?

o A) CLV is maximized
o B) CLV decreases
o C) CLV is invalid
o D) CLV is minimized
Answer:
20. If a company increases its retention spending and improves retention from 80%
to 90%, what is the impact on CLV?
o A) CLV will increase
o B) CLV will decrease
o C) CLV remains the same
o D) CLV will decrease initially, then increase
Answer:
21. A business charges $15 per month for a service and has a retention rate of 92%.
Marketing costs are $2 per customer per month and the gross margin is $12.
Calculate CLV.
o A) $120
o B) $540
o C) $720
o D) $1050
Answer:
22. A company’s retention rate drops from 95% to 80%, with no change in revenue.
What effect does this have on the CLV?
o A) CLV increases
o B) CLV decreases
o D) CLV becomes zero
Answer:
23. A customer spends $500 annually, and their retention rate is 70%. The gross
margin is 40%, and the company uses a discount rate of 6%. What is the CLV?
o A) $400
o B) $700
o C) $1140
o D) $1750
Answer:
Mixed Questions
25. If a company’s CLV is less than the cost of acquiring a customer, what does it
imply?
o A) The company is profitable
o B) The company is losing money on customer acquisition
o C) The company is breaking even
o D) The company needs more customers
Answer:
26. What is the relationship between Customer Acquisition Cost (CAC) and CLV?
o A) CLV should be greater than CAC for profitability
o B) CLV should be equal to CAC for profitability
o C) CAC should be ignored in CLV calculations
o D) CAC is irrelevant to CLV
Answer:
27. A company has a CAC of $300 and a CLV of $900. What is the return on
investment (ROI) from acquiring this customer?
o A) 1:1
o B) 2:1
o C) 3:1
o D) 4:1
Answer:
28. Which of the following actions will increase CLV?

o A) Decreasing retention spending
o B) Increasing discount rates
o C) Enhancing customer loyalty programs
o D) Reducing gross margins
Answer:
29. A company with a high retention rate but low marketing costs is likely to have
which of the following?
o A) Low CLV
o B) High CLV
o C) Negative CLV
o D) No relationship to CLV
Answer:
30. Which formula correctly represents a basic CLV calculation?

o A) CLV = Total Revenue × Retention Rate
o B) CLV = Gross Margin × Retention Period
o C) CLV = (M - R) × (1 + d) / (1 + d - r)
o D) CLV = Sales Price - Marketing Cost
Answer:

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1. What does Customer Lifetime Value (CLV) represent?

2. Which of the following is a primary use of CLV?

3. Which of the following is not a component of the CLV formula?

4. Why is retention rate important in CLV calculation?

5. How does increasing the retention rate affect CLV?

6. What is a typical application of CLV in marketing strategy?

7. CLV helps businesses focus on which type of profitability?

8. Which of the following best describes a “cohort” in CLV analysis?

9. What is a common mistake when calculating CLV?

10. Which business model makes it harder to calculate CLV accurately?

19. If the retention rate is 100%, what happens to the CLV?

28. Which of the following actions will increase CLV?

30. Which formula correctly represents a basic CLV calculation?

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