Real-Life Math -- Solution
You need to figure out if the mail-out is worthwhile.
Cost
of postcards = 200,000 x $1
Cost of postcards = $200,000
Cost
of postage = 200,000 x $0.45
Cost of postage = $90,000
Total
cost of mailing postcards = $200,000 + $90,000
Total cost of mailing
postcards = $290,000
Based on industry response rates of 1.5
percent, you will receive:
0.015 x 200,000 = 3,000 subscriptions
Net
revenue generated from 3,000 subscriptions = 3,000 x $60 per subscription
Net
revenue generated from 3,000 subscriptions = $180,000
Cost
of each magazine plus stamp = $4 + $0.69
Cost of each magazine
plus stamp = $4.69
Total number of magazines mailed out per
year = 3,000 x 12
Total number of magazines mailed out per year
= 36,000
Total operating costs associated with 36,000 magazines
= $4.69 x 36,000
Total operating costs associated with 36,000
magazines = $168,840
Profit = $180,000 - ($168,840 + $290,000)
Profit
= $180,000 - $458,840
Profit = -$278,840
This mailing
will result in a loss of $278,840. You will have to find a way to eliminate
the loss and realize a profit. You would do this by finding a more cost-effective
method of mailing the postcards or by raising the price of the magazine subscriptions.
"You
have to calculate the total cost of the mailing and find out your profit,"
says Kate MacDougall, a circulation manager. "You have to know what you will
make or won't make. Often, you don't make much profit until a subscriber
has been with you for a few years."