Change through ratios vs change through subtraction

Question

Suppose your item revenue is calculated as total population x % who buy item x $/item…now if the % of people who buy item changes from 50% to 40%, can We say that’s a 10% decrease in buyers so the original revenue would also decrease by 10%? When is this approach ok versus saying Original revenue would decrease by 40%/50%? I.e when can we use the delta in % and when do we use ratios To find The new revenue?

Answer 1

Hi!

You need to get your numbers right! This is not a 10% decrease, but a 10 PERCENTAGE POINT decrease! That's a very important differentiation!

So if the number of buyers decreases from 50% to 40%, this is a decline of 20% (one fifth). This means, everything else staying equal, the revenue will also decrease by one fifth, i.e., -20%.

Cheers, Sidi

Answer 2

This is a common (and major) mistake.

As Sidi also points out - its the difference between percentage points and percentage.

You could say that the metric declined by 10 percentage points (50% to 40%) - OR you could say that the metric declined by 20 percent (50%-40%)/(50%)

Answer 3

Hi there,

This is wrong! The population buying this product drops by 10 percentage points.

This means the # of customers buying this product drops by 20 percent.

As a result, revenues also drop by 20 percent (not 10 percent).