Question

The marketing manager of a hotel chain is considering putting an advertisement in a magazine. How would they analyze it?

Facts:

Avgrage Room Rate = $149/night

Room Cost = $23.00

Fortune Small Business Magazine

Circ = 1,000,000

Circ cost: $65/M: $65 x 1,0000 = $65,000

Production cost for ad = $25,000

Questions to answer:

1. What is the breakeven*?
A) room sales (units)
B) response rate
2. What is Cost per Response?
3. What would the profit or loss be?
4. Would you recommend this to your boss (B2B Resp Rate .79%)?

*Breakeven: The number of units that need to be sold to cover the marketing costs.

(Please use Excel if possible)

Answer 1

BREAKEVEN = PRODUCTION COST

___________________

SALES - VARIABLE COST

A) $25,000/ 149-23$

= $ 198.41

B) $25000/ 149-65

=297.62

2) COST PER RESPONSE= TOTAL AMOUNT SPENT / TOTAL RESPONSE

$25000 / 79%

= $3.16

3) SALES = $149

- VARIABLE COST

a) Room Cost = $23.00

b) Circ cost = $65

____________________

CONTRIBUTION $61

SALES = DESIRED PROFIT+ FIXED COST

_____________________________

CONTRIBUTION

$149 = X + $25000 / $61

=LOSS OF $ 15762

NO I WOULD NOT RECOMMEND THIS TO MY BOSS BECAUSE THERE IS A LOSS