The Massage Place charges $76 for a 60-minute massage. The cost of providing a 60-minute massage...

The Massage Place charges $76 for a 60-minute massage. The cost of providing a 60-minute massage is $25. The marketing director has determined that the average client gets a massage once every three months, and she is analyzing the profitability of a membership plan where members receive a discount on massages. The annual membership fee would be $50 and would entitle the member to 1 60-minute massage each month for $41. What additional is the additional value generated by the membership plan per client if an average client books a massage every month under the plan? Assume a three-year time horizon.

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Answer:

1. In the present scenario, it can be observed that average clients gets massage once in every 3 months. That is he visits 12/3 = 4 times in an year. So, for 3 years we receive the following contribution:

Gross revenue (3 years4 times76/massage)	912
Less: Costs (3425/massage)	300
Contribution	612

2. In the new scenario, we have an annual membership fee of $ 50 and massage charges are reduced to $ 41 per massage. Our costs per massage will be at $ 22/massage. Lastly our client turns up every month of the year so 12 visits per annum. So, for 3 years we get the contrbn:

Gross revenue (3 years12 times41/massage)	1476
Membership Fees (3 years * 50)	150
Less: Costs (31225/massage)	900
Contribution	726

Hence Value added => 726 - 612 = 114

jeff jeffy answered 1 year ago

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