How does breakeven analysis help marketers determine the best price for their products, and what other factors should companies consider?
Break-even analysis is a way by which marketers can determine the lowest price at which a product can be sold. If the product is sold at anything lower than the break-even price, the company makes a loss. This is not something that any company can continue to do except for a very short period of time.
The break-even analysis involves calculating all the costs that a company has to bear in producing the product, in its advertizing and in the final sales to customers. If the sales revenue is equal to the sum of all the costs involved in the sale of the product, the company has broken even. The price obtained from a break-even analysis is the minimum price at which a marketer can sell a product. As companies are not created to fulfill the necessities of customers without making a profit themselves, the actual price at which the product is sold has to be higher than the break-even price.
It is difficult to say that break-even analysis gives the best price to sell a product at. It only gives the lowest price. The actual price at which a product is sold has to be sold is fixed keeping in mind the price elasticity of the product in the market and the expected profits of the company.