Online Tutoring

February 14, 2020

FIRST CASE: Details mentioned in the question –

No of clerks = 2 rate = 6.25\$/hour. (With my assistance)

Total visitors: 30000

Given Closure rate: 24%

Avg. Transaction size is 32\$

Gross Margin = 60 percent

F.O.E. (Fixed operating expenses) amount to \$60000/annum

V.O.E. (Variable operating expenses) = 20% of all sales

Working:

Number of users that would end up buying = Closure*Total = 0.24* 30000 = 7200.

Generated revenue (total) = (No of buyers in the previous step*Avg. transaction size) = 7200*32 = 230400\$

Calculated gross profit = [(Gross Margin)/100]*revenue =  0.6* Total revenue = 138240\$

V.O.C. (Variable operating expenses) = VOE*revenue = 0.2*230400 = 46080\$

Thus finally,

Net operating profit = Gross – (Fixed operating expenses + Variable operating expenses)

Net = 138240\$ – 60000\$ – 46080\$ = 32160.00 \$

SECOND CASE: details mentioned in the question –

No of clerks: 2

Rate: 9\$ an hour

Commission : 4pc

+My assistance.

Total visitors: 30000

Given closure rate: 32%

Average Transaction size: 36\$ per transaction

Percentage of gross margin = 60 percent.

F.O.E. (Fixed operating expenses) = \$63000/year

V.O.E. (Variable operating expenses) = 24 percent of sales.

Working:

Revenue in dollars = (buyers)*(transaction size) = 9600*36 = 345600\$

Gross Profit = 0.6 * Total revenue = 207360\$

V.O.E. (Variable operating expenses) = (VOE percentage)*Revenue = 0.24*345600= 82944\$

Thus,

Profit (net) = Profit (Gross) – FOE (Fixed operating expenses) – V.O.E. (Variable operating expenses)

= 207360\$– (63000\$ + 82944\$) = 61416\$

Going by the numbers, the second case is a lot more profitable. It is better therefore to award the staff compensation of 9\$/hour and a commission (4pc). This results in a greater incentive to perform, leading to more sales and higher productivity.