GMAT Focus EditionData InsightsMedium
A business consultant is advising a startup on its pricing strategy for a new subscription service. The service offers three tiers: Basic, Premium, and Ultimate. The consultant has gathered data on the perceived value of each tier from a pilot group of 100 potential customers. | Tier | Monthly Price | % of Pilot Group Willing to Pay | |---|---|---| | Basic | $10 | 60% | | Premium | $25 | 30% | | Ultimate | $50 | 10% | Assuming the pilot group is representative of the target market, which tier generates the highest total monthly revenue, and what is that revenue?
- APremium, $750
- BBasic, $1,000
- CBasic, $600
- DUltimate, $500
Show answer & explanationAnswer & explanation
Correct answer: A. Premium, $750
To determine the highest total monthly revenue, calculate the revenue for each tier by multiplying its monthly price by the number of customers willing to pay for it (total pilot group * % willing to pay).
Why the other options are wrong
- B. Basic revenue is $600, not $1,000. This option is incorrect.
- C. Basic: $10 * (0.60 * 100) = $10 * 60 = $600. This is not the highest revenue. This option is incorrect.
- D. Ultimate: $50 * (0.10 * 100) = $50 * 10 = $500. This is not the highest revenue. This option is incorrect.
Revenue Calculation
Revenue is the total income generated by a company from its primary business activities, typically from the sale of goods or services.
- Calculated as Price per Unit × Number of Units Sold.
- A key indicator of a company's financial performance.
- Different from profit, as it doesn't account for costs.
Memory trick: Revenue is simply how much money you bring in from sales.