Using the assumptions provided, answer the following questions. You are trying t

Question

Using the assumptions provided, answer the following questions.

You are trying to help your friend promote his new painting business, so you come up with the following promotion:

$100 to paint any room in the house

Profit $40 per sale

Marketing cost per sale $1

What is the break-even response rate?

The following month, the price of paint decreases, so your profit increases to $50 per sale. Since your potential profit has increased so much, you decide to expand your marketing efforts. If you triple your marketing spend, going from $1 to $3, what impact would that have on your break-even response rate?

Explanation / Answer

Break even response rate = Marketing cost / Profit per response

Scenario 1: 1 / 40 = 2.5%

Scenario 2: 3 / 50 = 6%

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