Question

Tastykake Online Gift Box postcard mailing:

● Selling price = $41.50 per box with “free” shipping in USA

● Cost Of Goods Sold (COGS) = 60% of revenue

● Order processing and fulfillment costs = $6.95 per order

● Mailing size = 17,500 pieces

● Printing, mailing and postage costs = $.459 each

● Historical response rate = 4.6%

Questions:

1.  At the historical response rate, what would the expected profit or loss be for the Mother’s Day Promotion?

2.  What is the response rate needed to breakeven?

3.  What is the ROI at a 9.2% response rate?

SOS HELP FAST!

Answer 1

Mailing size = 17,500 pieces.

mailing associated cost = 17500*0.459 = 8032.5

Reponses received = 4.6% * 17500 = 805 pieces

Selling price = $41.5 per piece

COGS =$24.9 per piece

Order processing cost = $6.95 per order

Net costs = COGS + order processing cost = 31.85 per piece/ order

Net profit per piece = 41.5 - 31.85 = $9.65

Total profit = profit per piece * quantity = 9.65 * 805 = $7768.25

Net loss = Total profit - mailing associated cost

= 7768.25 - 8032.5

= $ 264.25

2) To achieve break-even, total profit must be equal to mailing associted cost

Therefore, quantity required to achieve break even = 8032.5/9.65 = 832.38 = apx 833 pieces

hence to achieve breakeven response rate needed = quantity for breakeven / mailing size = 833/17500 = 4.76%

3) At 9.2% response rate, total reponses received = 1610 responses

Profit at 1610 responses = 1610 * 9.65 = 15536.5

profit after deducting mailing associated cost = 15536.5 - 8032.5 = $7504

Return on investment = Profit / Mailing associated cost = (7504 / 8032.5) *100 = 93.42%

Therefore, return on investment is 93.42%