Profit chart

The term profit chart is often used to describe a misleading marketing tool frequently employed by business opportunities. It is little more than a multiplication table based on a completely hypothetical estimate. North American Vending was fined by the government for using profit charts.

The National Bulk Vendors Association advises::"Do not take seriously a promoter who says "If a vending machine does five vends a day, then 100 vending machines will do 500 vends per day." The math is perfect, but the question is whether the particular vending machine can realistically do five vends per day, especially at the location you may be able to place the vending machine."

However, like all statistical models, profit charts have myriad valid applications when used properly and honestly. One may use a model to predict which customers will buy and which will not, but traditionally these models are trained only to make the best buy/not-buy predictions. A profit chart is a derivative of a model that takes into account the 2x2 cost/profit matrix.

If one wanted to predict a sale, the model would take into account:1) The cost of predicting a sale when the customer does not buy (salesman's pay, catalogue, etc).2) The loss from predicting a no-sale when the customer would have bought.3) The benefit from predicting a no-sale when the customer did not want to buy.4) The revenue from predicting a sale when the customer does want to buy.

Fixed costs may be applied to the above scenarios if the type of business requires it.

The profit matrix allows models to be built for maximal profit rather than maximal accuracy.

References

* [http://www.nbva.org/intro/introbv.htm Introduction to Bulk Vending] , NBVA.