|2013 March 27th
In the BUS106 class some students were expressing frustration about understanding something in their intro to marketing course about Break Even Analysis.
So I grabbed my little Nikon AW 100 and made this quick video discussing WHAT Break Even Analysis is, and WHY it is useful to have this information
|.||Break Even Analysis is one
of those things that many Marketing students are afraid of trying to understand
because it involves a little bit of math - however the math is simple -
so try to grasp the concept cause it is important that you know how to
do this. It is done for little businesses and big businesses - the main
reason is to have some idea of how much to sell, before you start making
a profit - and if that number is too difficult to do - then maybe you can
change it by increasing your price, or cutting costs - that is the guts
of the analysis.
Break Even Analysis is explained most mainstream marketing textbooks - there are also many good websites that explain it too - and they give some simple examples - as seen below.
Break-even Analysis may take a little bit of time to understand but you should make an effort to grasp this concept - people really do this in business and if you can tell a potential employer that you are able to do this, it will increase your competitiveness. Break-even Analysis is used by business to help them arrive at a price that will allow them to make some profit, and, know when that will happen in the future.
|"One important disadvantage of the break-even analysis is that it requires estimating a single per-unit variable cost, and a single per-unit price or revenue, for the entire business. That is a hard concept to estimate in a normal business that has a collection of products or services to sell."|
So, assume we have a product we want to sell for $10.00 and we want to sell 1,000 of them. For this example our total fixed costs are going to be $7,700 and our total variable costs are $4.50/unit. Our formula would look like this:
P=1,000 ($10.00 - $4.50) - $7,700 = $5,500 - $7,700 = -$2,200
Instead of making money we have just lost $2,200. At break even the $2,200 number should be $0. We can't make money at 1000 units so how many must we really sell to break even?
We know our fixed costs (F) are $7700, and the price (p) is still $10.00 and our variable costs (V) are $4.50/unit we do this:
(p) price minus (V) variable costs divided into (F) fixed costs or
$10.00 - $4.50 = $5.50 divided into $7700 = 1400 units.
If we maintain our price and expenses we need to sell 1400 units of our product to break even. If we raise our price or reduce expenses we can sell less.
- this explanation comes from Eagle Marketing, Bozeman, Montana
... . .,,,,
||CONTACT I MAIN PAGE I NEWS GALLERY I E-BIZ SHORTCUTS I INT'L BIZ SHORTCUTS I MKTG?BUSINESS SHORTCUTS I TEACHING SCHEDULE|
|MISTAKES ITEXTS USED I IMAGES I RANK IDISCLAIMER I STUDENT CONTRIBUTORS I FORMER STUDENTS I PUBLICATIONS I TIPS I|
Prof. W. Tim G. Richardson © www.witiger.com