Break Even Poit Analysis

The break-even points analysis is a measuring method that calculates the margin in the safety of a sales venture by determining the number of units that must be delivered in order to offset all costs and start making a profit. Thus, considering my best friend’s interest in starting a company with money inherited from an aunt, and following the narrowed option chosen, the study is as follows.

The first choice was to open a Burger restaurant on Cleveland Avenue. The most critical factor was the gross fixed cost of $200000 that was available. Therefore, the margin of safety is the next concern that follows so as to produce the required number of units to cover the total expenses. Thus, the business would need at least 30769 units of sales to cover the expenditure before production of additional units of desire to make profits. The company will require at least 35 customers per hour to meet the target. The second option case where my friend has the idea of opening a franchised Mobile Ice Cream truck will require a total fixed cost of $28000. The business will then need 8000 units to break-even point before achieving the desired cost of margin safety. Thus, so as the company to meet the target, it must serve at least six customers per hour.

The option worth for investment is to start a burger shop. That is because such business requires a lot of attention to succeed. Thus, as a startup it is important to experience such challenges to build your confidence in the real business world market. He did not miss anything much only that it would be appropriate to include some everyday expenses such as tax and his employee’s salaries (Bowie et al. 67). Moreover, as an entrepreneur, it is vital to have proper research on the market targeted and to be ambitious by being goal oriented to achieve the desired goal.

The marketing plan assists in identifying the customers and competitors by developing strategies for a business success. As an option for starting franchised Mobile Ice Cream Truck business the first step is the determination of the four P’s necessary for the operations (Huang and Sarigöllü 121). The first one is the product to be sold, which has the required specification to meet the demand of the customer. The second factor is the price which covers the exact amount for what end user is expected to be paying for every ice cream. The third one is the promotion methods and strategies that need to be addressed in available techniques such as the sales promotion advertising, public relation among others (Pridmore and Hämäläinen 110). The final one is the place to sell the products to the customers by considering the key distribution points like the crowds. The second step is to formulate a marketing research for the ice cream sales by focusing on the common areas to conduct surveys in various forms. Firstly, brand awareness for customers is essential to determine if consumers are familiar with the products. Secondly, the target audience which will enable the business to craft messages that are relevant so as to resonate with clients (Mintz and Currim 25). Thirdly, the acquisition for new customers that need to be understood on how and why they choose ice cream as the product. Finally, the client retention that is cheaper than acquiring new ones by conducting research so as to determine the level of satisfaction to increase customer loyalty.

Marketing segmentation is another strategic tool in the commercialization plan. Therefore, it is important to identify the ideal criteria for the market segment by measuring on whether it is large to earn a profit. Moreover, a segmentation strategy should be incorporated to develop marketing programs that suit all of the segments identified and determine potential customers and distribution channels (Armstrong et al. 57). Thus, the methods for segmentation should meet the geographic criteria, psychographic, behavioral towards an attitude of the consumers.

The pricing and promotion strategy is also another consideration to be put in place. These are the essential four “Ps” in the marketing mix that enables a business to plan to be competitive. Various factors need to be considered to develop a pricing strategy for both short and long term to reflect the value of service provided compared to the competitors (Dietrich et al.70). It enables the business to strategically position itself to offer a unique product and service with a little competition. Therefore, before deviating from a given pricing strategy is necessary to determine the average price after comparing the lowest and highest respective. On the other hand, promotional techniques are vital for making the brand to the public and assist in attracting more new customers (Sánchez-Hernández et al. 27). The numerous methods should be put into use such as contest by putting the company names and logos for the public instead of hard campaign sales, mail order marketing introducing incentive program for customer referrals among others.

The option I believe is better my friend needs to use is the franchised the Mobile Ice Cream Truck business because it is easy to determine the cost per unit target for every hour. That is because such business has the consistency in growth which is highly regarded for their success in operations. Further, individuals may enjoy a joint venture and a quick market and maintaining more responsible control in professional life.

The Calculations for Break Even Point.

Break-even point = Total cost () sales price per unit- variable cost per unit

Option one

Total fixed cost = $ 200000(90000+48000+12000+50000)

Sales per unit = $10

Variable cost per unit = 3.5

BEP = 200000÷6.5

= 30769.

BEP in dollars = sales per unit multiplying break-even point per unit

30769 ×10 =307690.

Average customers per hour is BEP annually divided each day regarding the hours per day

=307690÷ (365× 24)

35 customers.

Option two

Total fixed cost = $ 28000(15000+ 12000+ 1000)

Sales per unit = $5

Variable cost per unit = 1.5

BEP = 28000÷3.5

= 8000

BEP in dollas = sales per unit multiply break-even point per unit

8000×5 =40000

Average customers per hour is BEP annually divided each day regarding the hours per day

40000÷ (365×24) = 6 customers per hour.

Works cited

Armstrong, Gary, et al. Marketing: an introduction. Pearson Education, 2015.

Bowie, David, Francis Buttle, and Maureen Brookes. Hospitality marketing. Taylor & Francis, 2016.

Dietrich, Timo, et al. ”Differential segmentation responses to an alcohol social marketing program.“ Addictive behaviors, vol.49, 2015, pp. 68-77.

Huang, Rong, and Emine Sarigöllü. ”How brand awareness relates to the market outcome, brand equity, and the marketing mix.“ Fashion Branding and Consumer Behaviors. Springer New York, 2014, pp.113-132.

Mintz, Ofer, and Imran S. Currim. ”What drives managerial use of marketing and financial metrics and does metric use affect the performance of marketing-mix activities?.“ Journal of Marketing, vol. 77, no.2, 2013, pp.17-40.

Pridmore, Jason, and Lalu Elias Hämäläinen. ”Market Segmentation in (In) Action: Marketing and get to Be Installed’Role of Big and Social Media Data.“ Historical Social Research/Historische Sozialforschung, 2017, pp.103-122.

Sánchez-Hernández, Germán, et al. ”Ranking and selection of unsupervised learning marketing segmentation.“ Knowledge-Based Systems, vol.44, 2013, pp.20-33.