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Anonymous A

on Aug 19, 2020

Global

Question about

Percentage of customers needed to buy the warranty in order to keep WyCar’s profit margin from model “300” stable

Can anyone guide me through this calculation please? I don't understand how the % that price reduction (€1000) represents of warranty profits (€1250) is directly related to the % of costumers needed to keep profits stable (80%).

Thank you in advance!

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Top answer

Ian

Coach

on Aug 20, 2020

#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

Fair question! So, because we are losing revenue from price reduction, we need to make up for this by gaining revenue from warranty sales.

This is a classic breakeven!

So, first, create the full formula, and then pulg-in what's missing.

Profit from warranty* % quantity sold = Profit loss from car
(Revenue from warranty - expected cost from warranty) * quantity sold = Profit loss from car
(2,350 - 1,100) * quantity sold = $1,000
1,250 * quantity sold = $1,000
Quantity sold = 1,000/1,250 = 80%

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Anonymous A

on Aug 20, 2020

Thank you very much for your answer Ian! Now it's very clear. I guess then it is just the quantity of warrants represented as a percentage (multiplied by 100). I'm used to seeing x as a percentage of y, not standing alone. So in this case I would see this % as the loss from car being 80% of profits from the warranty, so we have to compensate with 80% more sales. Is it common for quantity sold being asked as a percentage?

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