Marketing Essays on Break-even point analysis
Break-even point is an important measure of the scope a business regarding how a business model measures up or the viability and value of your business. It is a calculation of how many units need to be sold so that the total revenue or sales is equal to the total expenses incurred in a business. The sale of these units will essentially yield no profits or losses, and therefore, essentially, break-even point is the lower limit of units that need to be sold before making profit. For calculation of break-point it is important to have defined costs, that is, the price of the product, fixed and variable costs. From the case study, unit price is $ 7, cost of food production is $ 3, and total fixed costs is $ 5,600 (2000 + 500 + 3100). Therefore, break-even point is:
Break-even point = Fixed costs/ (Average order price – Average order cost)
= 5600/ (7-3)
=1400
The restaurant, however, even after being in operation for a year barely produces 1000 unit meals monthly required to break-even. It is important to understand the indications of a break-even analysis for your business. It can mean that there is need for re-evaluation of strategies, such as pricing of products, the cost of expenses and an analysis of the market situation. From the results of the restaurant’s break-point analysis it is clear that the strategies implemented are not feasible thus far. After a year of operation, it is crucial that the business should have achieved its break point so that profits can be realized. As the director, I need to re-evaluate certain key issues that will help lower the breaking point and making it more attainable.
Re-evaluating prices
One of the key ways of attaining your company’s break-even point is through changing prices of products. Raising the unit price for each meal will lower the number of units that need to be sold to break even. However, this a cautionary strategies because of the effect that an increase in price can have on the attitudes of customers and consequently on the volume of units sold. Naturally, customers do not appreciate price hikes, therefore it is important to consider this strategy critically. Despite, the risky nature of increasing prices, some business have been able to push through price increases without dire consequences. Also, up-selling and cross-selling can be beneficial, where we create an attractive and superior product by improving our product, that is, by cooking better food or adding recipes, which may convince customers of the quality of our products or justify an increase in prices.
Analyze market share
The size of market share ultimately affects the capacity of a business to break-even. Market share is the number of customers that the business has and whose contribution through purchases determines the ability to break even and make profit. In order to sell 1400 units and more, the restaurant needs a higher market share. It is critical to assess competition when a business intends to increase its market share. Also, it is important to re-evaluate quality standards, so that your products and services rival those of competitors. It is important to be realistic while assessing and analyze the business’s capabilities. Being in business for a year, as the director, I can employ strategies that rival our competitors and which will not incur any extra costs. For example, improving service delivery comes at no extra cost and customers are always drawn to good customer service.