Question

It costs twice as much to generate a new customer as it does to keep an existing one. What is the cost ratio of generating a new customer to keeping an existing one?

1) 1:1
2) 1:2
3) 2:1
4) 2:2

Answer 1

The cost ratio of generating a new customer to keeping an existing one is 2:1, indicating it is twice as expensive to acquire a new customer than to retain an existing one.

Step-by-step explanation:

When considering the cost ratio of generating a new customer compared to keeping an existing one, the question states that it costs twice as much to generate a new customer. Hence, for every dollar spent to keep an existing customer, two dollars are spent to acquire a new one. This sets the cost ratio at 2:1. In terms of options provided, this corresponds to choice 3) 2:1.

To put it plainly, if the cost to retain a customer is X, the cost to acquire a new customer would be 2X. Therefore, the cost ratio for generating a new customer to keeping an existing one is 2 to 1.