Calculate Profitability with Different Pricing Schemes

Q: Calculate Profitability with Different Pricing Schemes

This question evaluates proficiency in unit economics, break-even analysis, and pricing-scheme comparison for subscription products, testing business analytics and financial modeling skills relevant to the Analytics & Experimentation domain for a Data Scientist role.

Q: How do I approach Analytics & Experimentation interview questions?

Analytics & Experimentation questions require understanding of core concepts and practice. PracHub provides solutions with explanations to help you master analytics & experimentation interviews.

Question

Unit Economics and Break-even Analysis

Context

You are evaluating a subscription product’s unit economics. Assume all costs and revenues are monthly. Unless otherwise noted, fixed cost = $400/month and variable (service) cost per user =$ 5/month. In the base plan, users pay per-GB. In the alternative plan, users fall into either a free tier or a paid tier.

Questions

Base per-GB plan

Given: 20 subscribers, $1 per-GB price, 15 GB average usage/user, fixed cost$ 400, variable cost $5 per user.
Task: Compute monthly profit.

Scale scenario

If subscribers double to 40 (same usage and costs), does the firm break even?

Alternative two-tier plan

Free tier: costs $1 per free user to serve (no revenue).
Paid tier: fee $54 per paid user; cost$ 5 per paid user.
Task: What paid-user percentage is required to break even? Provide the formula in terms of total users N. Also evaluate for N = 20 (same as part 1) for a concrete number.

Hint: Set up revenue and cost equations, then profit = revenue − total cost. For break-even, set profit = 0 and solve for the unknown.

Calculate Profitability with Different Pricing Schemes

Unit Economics and Break-even Analysis

Context

Questions

Solution

Comments (0)