BabyGap website is considering how to increase demand for its line of infant clothes. One proposal is to buy a mailing list with 100,000 names of recent parents who have household incomes greater than $40,000 and send them each a coupon for $5 for purchase at the web site.
Gap has to pay $0.50 for each name on the list. It will also incur a mailing cost of $0.50 for every mall it sends out Gap expects the average customer responding to such a promotion win buy clothes worth $50.00 at the web site (including shipping and handling charges).
The average cost for Gap for the clothes will be $20,00. The industry average for purchases arising from such targeted mailings is roughly 6%.
Compute the contribution margin. ($)