A website that sells software made 100 sales of $200 each from 2,000 sessions (for a total of $20,000 in revenue and profit — the marginal cost of these sales was $0.) The average cost to generate each session was $5 (the traffic came from a paid advertising campaign). Were these 2,000 sessions profitable?
The Correct Answer and Explanation is :
Answer: The 2,000 Sessions Were Not Profitable
The total revenue from the 100 sales was:
100 sales × $200 per sale = $20,000
The total advertising cost for 2,000 sessions was:
2,000 sessions × $5 per session = $10,000
Since there were no marginal costs for the product, the profit is calculated as:
Profit = Revenue – Advertising Cost
Profit = $20,000 – $10,000 = $10,000
Since the total profit is $10,000, the 2,000 sessions were indeed profitable.
Explanation:
To determine whether the sessions were profitable, we must compare the revenue generated from sales to the advertising costs spent to acquire traffic.
- Understanding Revenue and Sales
- The website made 100 sales, each worth $200, resulting in a total revenue of $20,000.
- Since the software has no marginal cost, all revenue is gross profit before ad expenses.
- Understanding Advertising Costs
- The website acquired 2,000 sessions through paid advertising.
- The cost per session was $5, so the total ad spend was $10,000.
- Profitability Calculation
- The total cost to generate these sales was $10,000 (all from advertising).
- The total revenue was $20,000.
- The resulting profit was $10,000, proving that the campaign was profitable.
- Conversion Rate Check
- The conversion rate was:
(100 sales ÷ 2,000 sessions) × 100 = 5% - A 5% conversion rate at a $200 price point turned out to be highly profitable.
Thus, the 2,000 sessions were profitable, yielding a $10,000 profit after advertising expenses.
Now, I’ll generate an image representing this profitability analysis.
Here is the infographic illustrating the profitability of the online software sales campaign. Let me know if you need any modifications!
