Question

a local restaurant prides itself in having a high number of return customers. to build loyalty, the owner of the restaurant offers a free prime rib 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 = 100
• 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?

$2
$3
$6
$240

Explanation:

Step1: Calculate retained customers

First, find the number of retained customers using the formula:
$\text{Retained Customers} = \text{End Customers} - \text{New Customers}$
$\text{Retained Customers} = 120 - 40 = 80$

Step2: Compute retention cost per customer

Divide total redemption value by retained customers:
$\text{Customer Retention Cost} = \frac{\text{Total Value of Free Dinners Redeemed}}{\text{Retained Customers}}$
$\text{Customer Retention Cost} = \frac{240}{80} = 3$

Answer:

$3$