##### 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.

This question evaluates a candidate's ability to model unit economics, customer lifetime value, cohort cash flows, and break-even analysis under varying contract lengths, costs, and churn impacts.

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This is a medium difficulty Analytics & Experimentation question, commonly asked during Onsite rounds at Capital One.

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This question is commonly asked for Data Scientist candidates at Capital One during technical interviews.

Assess Customer Value with Varied Contract Terms and Costs

Scenario

A subscription network-service provider wants to assess unit economics and portfolio impact under different contract terms and cost structures.

Assumptions for clarity:

No discounting (time value of money ignored).
Service cost applies in all active months, including the free period.
Revenue is $0 in months 1–3 and$ 40/month from month 4 onward.

Question

Base case (per-customer and at 10,000 acquisitions/year):

Revenue: $40/month with the first 3 months free.
Service cost: $25/month.
Install cost: $35 (one-time).
Marketing and overhead: $120 per new customer (variable).
Contract term: 15 months.

What is the net value per customer? What is the total annual net value at 10,000 acquisitions?

Contract extended to 18 months (same costs as above):

How does the net value per customer change versus the 15-month contract? Explain briefly.

Contract term 21 months, with churn penalty and new marketing mix:

10% churn incurs a $100 penalty (expected cost).
Marketing cost changes to $20 per new customer (variable) plus$ 1,000,000 fixed overhead.

How many customers are needed to break even?

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

Scenario

A subscription network-service provider wants to assess unit economics and portfolio impact under different contract terms and cost structures.

Assumptions for clarity:

No discounting (time value of money ignored).

Service cost applies in all active months, including the free period.

Revenue is

0 in months 1–3 and

40/month from month 4 onward.

Question

Base case (per-customer and at 10,000 acquisitions/year):

Revenue: $40/month with the first 3 months free.

Service cost: $25/month.

Install cost: $35 (one-time).

Marketing and overhead: $120 per new customer (variable).

Contract term: 15 months.

What is the net value per customer? What is the total annual net value at 10,000 acquisitions?

Contract extended to 18 months (same costs as above):

How does the net value per customer change versus the 15-month contract? Explain briefly.

Contract term 21 months, with churn penalty and new marketing mix:

10% churn incurs a $100 penalty (expected cost).

Marketing cost changes to

20 per new customer (variable) plus

1,000,000 fixed overhead.

How many customers are needed to break even?

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

Assess Customer Value with Varied Contract Terms and Costs

Quick Overview

Scenario

Question

Solution

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Assess Customer Value with Varied Contract Terms and Costs

Quick Overview

Scenario

Question

Solution

Submit Your Answer to Earn 20XP