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Anonymous A
on Sep 20, 2023
Global
Question about

Why sales from initial orders /catalogs sent?

I don't get it why it divides  initial orders /catalogs sent while you added repeat orders*order price (100,000) which gives us a total of 500,000 in revenue. Nevertheless, you divide 500 (which contains the sales from repeat orders + repeat orders) and you only divide it by the catalogs sent (200,000). 

Wouldn't it be pertinent to divide the revenue by 201,500 so to contain the nb of repeat orders as well and not by 200,000? 

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Ian
Coach
on Sep 20, 2023
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

Please remember, that in a free Q&A, your goal should be to maximize the chance of a helpful answer from us coaches.

Can you please help me help you?

If you can reference the exact place in the case where you are confused, and clearly articulate the question/concern (screenshots help!), then I can better understand your question/context and therefore help :)

on Sep 21, 2023
Well, I think my question is pretty clear. I am referring to the only moment it divides by 200,000. In any case, the website doesn’t allow me to upload any screenshot.
Deleted user
Coach
on Sep 21, 2023

Dear,

I'd like to clarify the distinction between catalogs and orders, as they are two entirely different variables. Adding them together, as suggested (i.e., 200,000 + 1,500), is not accurate because it's like comparing apples to oranges.

The starting point of this case is to estimate total annual revenues:

Total Revenues = Initial Orders + Reorders

From the available data, we only have information about the monetary value of initial orders ($400,000) but not for reorders (we only have the quantity sold). Therefore, the key assumption here is that the average price per initial order equals the average price per reorder.

This assumption, while not definitive, is a reasonable one. Thus, the case calculates this average price by examining the initial orders and then multiplies this average by the quantity of reorders.

Now that we have an estimate of total revenues, we can determine how much revenue each catalog sent to potential clients generates. This addresses your question. Not every catalog leads to an order; it's akin to distributing flyers or sending promotional emails, with the hope of converting a portion of recipients into customers.

To illustrate, consider a lemonade shop that distributes 1,000 flyers across the neighborhood and sells 100 lemonades at $1 each. The total revenue is $100 (with an average price of $1 per lemonade), but the average revenue generated by each flyer is $0.10 ($100/1,000).

I hope this clarifies the distinction. If you have further questions, please feel free to ask.

Best regards,
Antonio

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