Percentage of customers needed to buy the warranty in order to keep WyCar’s profit margin from model “300” stable

Question

Can anyone guide me through this calculation please? I don't understand how the % that price reduction (€1000) represents of warranty profits (€1250) is directly related to the % of costumers needed to keep profits stable (80%).

Thank you in advance!

Answer 1

Hi there,

Fair question! So, because we are losing revenue from price reduction, we need to make up for this by gaining revenue from warranty sales.

This is a classic breakeven!

So, first, create the full formula, and then pulg-in what's missing.

Profit from warranty* % quantity sold = Profit loss from car
(Revenue from warranty - expected cost from warranty) * quantity sold = Profit loss from car
(2,350 - 1,100) * quantity sold = $1,000
1,250 * quantity sold = $1,000
Quantity sold = 1,000/1,250 = 80%

Answer 2

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Answer 3

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