Promotion Profitability: 1. If a company sold 1,000 units last year in March, an

Question

Promotion Profitability: 1. If a company sold 1,000 units last year in March, and this year sold 1,200 units in March after implementing a new ad, what % lift did they achieve? 20% 2. If the product this company sells is priced at $50 per unit with a 40% contribution margin, what Return on Marketing Investment (ROMI) did they achieve if they spent $2,000 on the ad? 100% 3. If this same company ran a price promotion in April lowering the price from $50 to $45, what is their new dollar amount contribution? $15 4. The baseline volume for April is 25% greater than March (per question #1 March baseline was 1,000 so April baseline was 1,250). Based on the new pricing in April ($45 compared to previous price of $50), how many additional units must be sold in order to increase overall contribution by $10,000? (Hint: You must first calculate the total contribution at the regular price of $50 and the baseline volume of 1,250, then add $10,000 to that total, then divide that overall contribution by the new unit margin – which is the answer from question 3) What is the answer to #4

Explanation / Answer

CONTRIBUTION PER UNIT @50 IS 40% OF 50 OR SAY $20.

SO CONTRIBUTION FROM 1250 UNITS WILL BE = 1250* 20 = 25000.

HOWEVER WE NEED TO INCREASE THE CONTRIBUTION BY $10000, IT MEANS THE TOTAL CONTRIBUTION WILL BE 25000 + 10000 = 35000.

ALSO WE KNOW THAT THE FALL IN PRICE HAS REDUCED THE CONTRIBUTION BY $5 TO $15 PER UNIT SOLD.

HENCE UNIT REQUIRED TO GET A CONTRIBUTION OF $35000 WILL BE

35000 / 15 = 2333 UNITS.

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