50,000 shoppers with a 0.5% conversion rate for a chair that costs $250. Wayfair makes a 27% profit. Next, 50,000 shoppers will get a 10% discount. What is the conversion rate they must achieve to achieve the same profits as before?
This is incorrect Old revenue = 50000*250*.005=250*250 New revenue with conversion rate r% = 50000*r*250*.9 = old revenue = 250*250 r = .55%
Scenario 1 Number of sales=50,000*.5/100 = 250. Revenue=250*250 = 62,500. Profit is 27%. Therefore 62,500 = 1.27*cost Therefore cost = 49,212.598. Profit = 62,500-49212.598 = 13,287.40. Cost of chair = 250/1.27 = 196.85 Scenario 2 Number of sales = 50,000*r/100 = 500*r (r is new converion rate) Revenue = 500*r*.9*250 Total cost = 500*r*196.85 Profit = 500*r(250*.9-196.85) = 13,287.40 500*r*(28.1496) = 13,287.40. Therefore r = 0.944. The first answer considers profit as margin (percentage of sales) which seems incorrect or needs to be clarified
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Number 2 is wrong, number 1 is right. Just because revenues equal doesnt mean profits will equal - they sacrifice profits when they decide to give the sale
Do they expect you to do this in your head, or will they give you pen/paper and a minute?
July 9th Answer is the correct answer. It is not hard: Initial profit is = 50000 * 0.005 * 250 * 0.27 (No need for the calculator yet) After sale profit = 50000 * x * 250 * 0.01 * 0.27 (Still don't need the calc) The question asks for the conversion rate such that profit are the same before and after the sale, so... Initial profit = After Sale profit 50000 * 0.005 * 250 * 0.27 = 50000 * x * (250 - (250 * 0.01)) * 0.27 (divide through & cancel) 0.005 * 250 = x * 225 x = (0.005 * 250) / 225 x = 0.0056 or 0.56%
You don't actually need to calculate anything other than the new conversion rate. Why? Look at the equation below: (customer sent = 50000) * (customer bought / customer sent = 0.005 conversion rate) * (revenue / customer bought = 250) * 0.27 (profit / revenue) gives (profit / customer sent). this should be equal to the one after discount. only (revenue / customer bought) changed -> it decreased 10%. therefore, conversion rate needs to increase by (1/0.9), which gives 5.56%.
July 9 is correct. Nov 21 is incorrect.
July 9 is wrong because the profit margin changes(As sale price changes, but the cost doesn't change)
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