Collin wants to expand his lawn-care business and wants to evaluate the profitability of a potential new market. The area he is looking at has 400 homes and Collin estimates that 10 percent of them would be likely to use his service. He charges $25 per lawn and on average customers want their lawns taken care of 20 times a year. Collin estimates the variable costs to expand his business will be $5 per service call and his fixed costs are $2,000. How much profit would Collin make on this new segment?

Segment profitability = (Segment size × Segment adoption percentage × Purchase behavior × Profit margin percentage)- Fixed costsSegment size = Number of people in the segmentSegment adoption percentage = Percentage of customers in the segment who are likely to adopt the product\servicePurchase behavior = Purchase price × Number of times the customer would buy the product\service in a yearProfit margin percentage = (Selling price - Variable costs)÷ Selling priceFixed costs = Advertising expenditure, rent, utilities, insurance, and administrative salaries for managersCalculations based on our example are as follows:Segment profitability = (400 × 10% × (25 × 20)× (25 - 5)÷ 25)- $2,000Segment profitability = (40 × (500)× (20 ÷ 25))- $2,000Segment profitability = (20,000 × $0.8)- $2,000Segment profitability = $16,000 - $2,000Segment profitability = $14,000