Question: Using the assumptions provided, answer the following questions. You ar

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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? 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 (%) = Cost per contract ($) / Contributing Profit per sale (%)

Break-even response rate = $100 + $1 / $40

Break-even response rate = 2.525%

* Profit increases to $50 per sale, marketing cost tripled to $3

Marketing cost per sale = $3

Break-even response rate = $100 + $3 / $50

Break-even response rate = 2.06%.

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