Question

The cost of distrusting a perfume sample is $0.75 per unit. The company wants to distribute 30,000 units. If a sample recipient tries the perfume and converts to be a customer, he/she will buy on average of 5 units. The profit per unit is $4.

1) What is the recipient-to-customer conversion rate to break even?

2)If the target for the program to be successful is 10% gain over the break-even rate, how many customers have to convert after trying the perfume product?

Answer 1

Answer 1
Cost of distributing 30000 samples = 0.75 * 30000 = $22500

Profit per unit = $4

Units per customer = 5

Let 'x' be the number of units sold to break even
To break even, the total profit from sales should be equal to the cost of distribution

Total profit from sales = Cost of distributing 30000 samples
=>
4 * x = $22500
=>x = 5625 units

Number of customers will be = 5625 /5 = 1125

Hence at breakeven, the recipient-to-Customer conversion rate will be = 1125 *100 / 30000 = 3.75%


Answer 2
If the target for the program to be successful is 10% gain over the break-even rate,

Then, number of units sold should be = 5625 *(1+10%) = 6187.5 ~ 6188 units

With 6188 units we wil be generating a profit of  6187.5 * 4 = 24750 which is exactly 10% above the Cost of distributing 30000 samples.

Customers we have to convert to achieve this = 6188/5 = 1237.6 ~ 1238 customers.

Hence, If the target for the program to be successful is 10% gain over the break-even rate, the number of customers we have to convert after trying the perfume product = 1238