Question

Assume you would like to apply the logistic regression predictive model to a new sample of 12000 customers to targot those likely to churn offectively Assume that the maximam namber of cirstomers you can contact is 1800 and the cost to contact each donor is 300 . Further, each churn customer you contact will stay and send 5700 and the cost of ruming the model is $20.000

I. How much net gain/loss will the company make if the model is used to contact the maximum number of the customers?
II. How much net gainiloss will the company make if the model is not used to contact the maximum number of the cust omers?

Answer 1

The net gain/loss for the company if the model is used to contact the maximum number of customers is $9,720,000 - ($20,000 + $540,000), and if the model is not used it is -$20,000.

Step-by-step explanation:

To calculate the net gain/loss, we need to consider the revenue and the costs involved. Let's break it down:

I. Using the model to contact the maximum number of customers:

Revenue: Net revenue per customer contacted is the contribution per customer from a churn customer minus the cost of contacting the customer, which is $5700 - $300 = $5400. Therefore, the revenue from contacting the maximum number of customers is 1800 * $5400 = $9,720,000.

Costs: The cost of running the model is $20,000. Additionally, the cost of contacting the maximum number of customers is 1800 * $300 = $540,000.

Net Gain/Loss: Net Gain/Loss = Revenue - Costs = $9,720,000 - ($20,000 + $540,000).

II. Not using the model to contact the maximum number of customers:

Revenue: The revenue in this case would be $0 since no customers are being contacted.

Costs: The cost of running the model is still $20,000, so the net gain/loss would be -$20,000.

Therefore, the net gain/loss for the company if the model is used to contact the maximum number of customers is $9,720,000 - ($20,000 + $540,000), and if the model is not used it is -$20,000.