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I did not know whether I should post this in mathSE or stackoverflow, but since it involves code and some basic algorithms I went for SO.

My question comes from a program that I have to do based on this article:

Article

The problem is that I cannot seem to be able to allocate or understand some of the variables and how they fit, I personally think this is very sloppy mathematics and some rigorous stats would have probably benefited this article, but that's just me.

Anyway this is my pseudo-code/algorithm for the computation and it works:

        /* Algorithm
         * 
         * 1 Avg amount of sales - cupon face value
         * 85 - 75 = 10 Additional $
         * 
         * 2 Nbr cupons sold * redemption percentage (percentage Of Cupons Sold)
         * 3000 * 85 = 2550 Number of tickets redemeed
         * 
         * 3 Nbr cupons sold * sale price * percent taken by groupon
         * 3000 * 35 * .50 = 52500 Groupon money limit goal
         * 
         * 4 Nbr of tickets redeemed * Additional $
         * 2550 * 10 = 25500 Additional money spent by customer
         * 
         * 
         * 5 additional money spent by customer + grupon money limit 
         * 25500 + 52500 =  78000 Gross income
         * 
         * Expenses
         * 
         * 6 Nbr of tickets redeemed * avg amount sold * percent of incremental Cost Sales
         * 2550 * 85 * 40 =  86700 Total expense
         * 
         * 7 Nbr of tickets redeemed / Avg amount of cupons purchased by customers (number cupons purchased by custormers)
         * 2550 / 2 = 1275 Nbr customers
         * 
         * 8 Nbr customers * percent of existing customers (cuponsUsersAlreadyCustomers)
         * 1275 * 0.60 = 765 amount of new customer (Standard deviation of average customer per population)
         * 
         * 9 SD of avg customer per population * Percentage of new customer who returned (percent cupon user who become customers)
         * 765 * 0.10 = 76.5 new repeat customer avg
         * 
         * 10 Net cost / Avg new repeat customer
         * 8700 / 76 = 114 Amount paid for each new regular
         * 
         */

The question is, where the heck that 60% comes from? and is it a fixed value? I mean technically 40% + 10% is 50% and 40% is the old customers. Second what about:

"7. What is the advertising value of having your business promoted to 900,000 people — that’s the number on Groupon’s Chicago list — even if they don’t buy a coupon? $1,000 advertising value."

Why do I need that? I mean I am already comparing how much each new customer will cost me with Groupon and traditional advertisement why is that there? do I need it in part of my computation?

It's a good project but this is really weird how the guy in the document is explaining the math!

The Law
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  • I'm voting to close this question as off-topic because this isn't directly about computers or programming. – Paul Hankin Jan 27 '17 at 22:39
  • Please explain what you're trying to do *in the question*, don't just post a link to an explanation. – Beta Jan 28 '17 at 02:24
  • I am trying to do what is described in that link, there is no other way to explained it. No this is not off topic, it's about programming and computation algorithms, even though simple, but I will check the answer that I got so we can leave this behind, I was hoping to see different prospective but the answer below is satisfying. Unfortunately whoever asked this, put in a variable that is completely necessary and throw me off a lot (that's a good thing I like tricky problems). – The Law Jan 28 '17 at 02:51

1 Answers1

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The 60% comes from the assumption "4. 40 percent used by existing customers." Implicit seems to be the assumption that the "average number of coupons bought by each customer" does not differ significantly between new and existing customers. This is not mentioned explicitly, but since 2,550 is the number of redeemed coupons and the percentage is multiplied by 2,550 / 2 (assumed numbers of customers associated with these coupons) this seems to be a necessary assumption.

Edit: Sorry, I overlooked your second question. The $1,000 is mentioned only in the Revenue but not included in the calculation of the cost. In theory you could subtract it from the cost, but this is only sensible if you'd have spent that money on advertising anyways and it could thus be considered a cost external to the deal. It is however prudent to simply mention this additional benefit (which you get in addition to the new customers) but still consider it as part of the cost since it definitely has to be paid for.

Jonathan von Schroeder
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  • I get now the 60%, 40% already customers 10% new and will come back customers and 50% just new customers that might not come back, so 60% new customers in general. Although still don't get the $1000, so I subtract to one of the expenses? If I do though my computation messes up thought. It takes in consideration that you have spent money on advertisement ($125 on # 8), so should I subtract it from the total expenses? – The Law Jan 27 '17 at 20:19
  • Sorry if my explanation was unclear: The $1,000 do not have any effect on the calculation (and I tried to explain why I believe that to be prudent). They are just an additional benefit ($1,000 worth of advertising in addition to the new customers) that the author probably felt was worth mentioning. For your calculation this number is however not needed at all. – Jonathan von Schroeder Jan 27 '17 at 20:23