Question about the percentage of customers

Oliver Wyman case: Full Electrons Ahead
New answer on Jul 26, 2021
1 Answer
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Anonymous A asked on Jun 29, 2021

Hi there,

I do not understand the calculation of the final question:

Which percentage of customers has to buy the warranty in order to keep WyCar’s profit margin from model “300” stable?

80% of customers have to buy the warranty – average profit from the service is € 1,250 and the price decline to be compensated is € 1,000.

How do we calculate the 80% and how do we know that 80% of customer have to buy the warrantly? The margin should be (1,250-1000)/1250 = 20%

Thank you very much!

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Silvia
Expert
replied on Jul 26, 2021
McKinsey| 5-yrs in consulting| Peer leader Consulting Club|MBA at LBS| up to 50% discount available

Hi there,

I can help you on this. 

  1. For each car sold you lose EUR -1,000, given the decrease in price (no matter if sold with warranty or not)
  2. For each car with warranty  you will have a profit of EUR 1,250 (price of the warranty - expected cost of EUR 1,100, calculated in the previous question)
  3. For semplicity assume that you have 10 total customers (I suggest you to use this approach when you have to calculate percentages or ratios)
  4. With 10 customers the equation to solve will be

- EUR 1,000 * 10 = 1,250 * 10* x%

Solving for x% you will have

x% = 10,000/12,500 = 80%

Of course this works with any value of total costumers (point 3.)

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Silvia

McKinsey| 5-yrs in consulting| Peer leader Consulting Club|MBA at LBS| up to 50% discount available
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