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Aaron Nathan and Alexis Roberts are thinking about launching a new e-commerce business.
Aaron Nathan and Alexis Roberts are thinking about launching a new e-commerce
business. They firmly believe that 30% of the people who try their product at the full price will
buy two additional units at their planned 25% discount for follow-up purchases. It is unlikely
anyone will buy one additional unit(as they'd have to pay full price) orthree additional units (as
most people need at most three totalunits).
Suppose theirfixedcosts are $390,000, sellingprice is $40 perunit, andvariable costs
are $20 per unit.
a. How many customers do they need to break even?
b. What profit do they make if 20,000 people try their product?
c. Howsensitive isyourprofitprojectionin(b)tothe assumptionthat 30%willbuytwo
additional units?
d. Suppose a 50% discount for follow-on purchases causes a dramatic increase inthe
percentage ofpeople who buy two additionalunits. How dramatic would ithave to be for
this to be a good idea
