How does a break-even analysis help marketers determine the best price for their products?
This is an important question. The best place to start is with a definition of a break-even analysis. A break-even analysis is an analysis of the point at which expenses and other costs are equal to the revenue generated. In other words, it is the point where a company breaks even; there is not profits or losses to speak of.
This is an important analysis to have for several reasons.
First, it will give a company an idea of how much of a product or service it will need to sell in order to break even and more importantly make a profit.
Second, it will allow a company to plan accordingly. For example, if a company feels that they have to sell to much to break even and they believe that they will not be able to make a profit, then they must do either one of two things. They may want to see if they can reduce costs of expenditure or raise prices on their product or service to come to a lower break-even number.
Third, it gives a company a macro picture of the company and this enables a company to set goals.