Question

Cut-Right lawn service is determining whether to target the homeowner or business market. The firm will target the segment with the highest profit.

a. Based on the data below - what is the profit for each segment?

b. Which should Cut-Right choose?

	Homeowners	Businesses
Segment size	75,000	1,000
Segment adoption percentage	1%	20%
Purchase behavior:	Price: $100 Frequency of purchase: 12 times	$500 20 times
Profit margin	60%	80%
Fixed costs	$400,000	$1,000,000

Answer 1

	Homeowners	Businesses
			Segment size (a)	75,000	1,000
Segment adoption percentage (b)	1%	20%
No of customers (n) = a*b	750	200
Purchase behavior:	Price: $100	$500
Freq.	Frequency of purchase: 12 times	20 times
Revenue (R) = n * price * freq.	900000	2000000
Profit margin	60%	80%
Profit = R* profit margin	540000	1600000
Fixed costs	$400,000	$1,000,000
Net Profit	140000	600000
Net Profit Margin	35%	60%

As the both profit as well as Net profit margin are high in Bussinesss CUT- RIGHT should choose it only.