Break even
You’ve worked as a sales trainer in your company for the past ten years. You’ve decided to start your own company, producing and marketing sales training videos. You will work out of your home. Two friends experienced in sales training have agreed to partner with you. You’re excited and ready to start. The problem is you need to borrow money to jump start the business. A family member has agreed to finance you. However, before he does, he’s requested a break even analysis. You give him the following cost estimates:
Fixed Costs
Salary, annual $85,000
Advertising $10,000
Equipment $5,000
TOTAL $100,000
Variable Costs
Secretarial $20,000
Production $40,000
TOTAL $60,000
Through your research, you have decided to charge $250 for each video. You expect to sell 1,000 videos the first year. At that quantity, your variable costs are $60 per video. When answering the following questions, please show the calculations for your answers.
Part 1
What’s the breakeven point in units – how many videos priced at $250 per unit will you need to sell the first year to break even?
Part 2
If you raised your price per video to $300 per unit, how many would you need to sell to break even? Variable costs remain the same.
Part 3
How could you lower the break even point and make the business more profitable? Be specific. To write “lower the variable costs” is too vague. What costs? How much? Is this the only pot of money that can be touched? Be specific
