Calculate Incremental Customers for Marketing Spend Justification
Company: Capital One
Role: Data Scientist
Category: Statistics & Math
Difficulty: easy
Interview Round: HR Screen
##### Scenario
Estimating incremental customers needed to justify partnership marketing spend.
##### Question
a) If an annual campaign with the ride-sharing partner costs $25 million, how many incremental cardholders are required to at least break even? b) Assuming instead a variable cost of $40 per new customer per year and a one-time marketing spend of $11.8 million, how many new customers are needed to achieve the annual profit calculated in Question 2?
##### Hints
Use per-customer annual profit figure from Question 2; include new variable cost where applicable.
Overview: Evaluates incremental customer calculations for partnership marketing spend justification. Strong answers derive break-even customers for fixed spend and required volume for variable-cost campaigns against a profit target.
Community answers
Answer by jeffpeendawg
For part one, we have a fixed annual cost of twenty-five million which we are looking to break even using our per customer annual profit p. Assuming these are all equal then we can calculate our number of customers by dividing 25,000,000/p, and rounding up to the nearest whole customer.
For part two, we are introduced to a variable cost of 20 per new customer, which we can subtract off of p. To calculate our profit, we need to solve essentially the same question, this time our breakeven is equal to 11,800,000/(p - 40). To get a net profit of T we could add T to our 11,800,000. Of course this would not be feasible if p was less than 40.
