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Anonymous A

on Nov 15, 2023

Global

Question about

Probability of purchase 25%

Hi there,

I'm confused on why you multiplied the total income from a SIM card of a contract by the probability (€200 * 25% = €50)

What does the €50 mean here? Does it mean that out of N number of customers, the company earns on average €50 per customer?

900+

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Top answer

Cristian

Coach

on Nov 16, 2023

#1 rated McKinsey Coach

Happy to clarify!

Basically, to make the calculations easier, you want to figure out what is the weighted profitability per customer coming from the contract.

Since we know that 1 out of 4 customers get such a contract and the average value of a contract is 200 EUR, then for the typical customer that means 200 * ¼ = 50 EUR.

This means that out of 4 customers, only one will get the contract and pay 200 and the other 3 won't, but if we have to think about the average, then it's about 50 EUR for each. Does that make more sense?

Good luck!
Cristian

2 comments

Jessica

on Apr 10, 2024

However, if use 200 as the revenue base to calculate profitability, then the revenue recognition is happened at the very once the contact has been signed. Is any problem to recognize revenue/profitability like this? Many thanks.

Jessica

on Apr 10, 2024

Appropriated and agreed with your calculation logic; the concern on my side is not we use 50 Eur as weighted profitability per customer, but we recognize profit margin once the contact being signed. For instance, if the customer sighed at second year, normally 25 EUR will be recognized as the profit margin gain at the end of the second year. The rest of the 25 EUR will be recognized at the end of third year, where beyond 2 year investment horizon. In this case, within the interview setting, should we add up one more assumption that we assume that all profit margin can be recognized once the contact signed between both party. Thanks again for your elaboration and hope to further look at the problem with you.

Ian

Coach

on Nov 16, 2023

Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

Help us help you! Can you flag exactly in the case where this is (screenshots are helpful)