The Quality Sweater Company sells hand-knitted sweaters exclusively through its website. The company is planning to launch an email marketing campaign. The cost of hiring a direct marketing firm is $20,000 plus $0.25 per sent email. In addition, the email marketing firm gets an additional $1.00 commission for each email that results in a purchase. The average order size of a customer is $40, and that the Quality Sweater’s cost of making, packing, and shipping averages about 80% of orders’ value or $32. The company plans to send out 100,000 emails. Develop a spreadsheet model to answer the following.
How does a change in response rate of the email campaign affect profit?
For what response rate the company breaks even?
Should the company proceed with the campaign if the estimated response rate is 3%?
Session Outline Example 2: Ordering Decisions BN Inc., a bookstore chain, is in the process of planning the order quantity of an upcoming political memoir from the publisher. The book will retail for $30. The wholesale price BN pays to the publisher to buy the book depends on the order quantity, as shown below. BN’s estimate of demand for the book is highly uncertain and can vary between 500 and 4500, and that it plans a single order. While the current version of the book is hardcover, a paperback version is expected down the line. At that point, any leftover hardcover book will be put on sale for $10 apiece. BN expects to sell all leftover books at this price.
