# Pricing Products and/or Services

Business Finance

**Pricing Products and/or Services**

This week you are reviewing setting pricing based on break-even analysis, pricing strategies, and credit policies as they affect your small business and the people with whom you do business. You reviewed all of these concepts in both your Reading and practiced with these concepts in your Learning Activity. Now you have a chance to apply them to the business you are developing throughout this course.

For the product or service you will be offering in your business, please perform a break even analysis for three services, or three products.

**Can you make response each posted below # 1 to 3 **

**1. From: Tyler Cugino posted May 26, 2018 5:16 PM**

My company is Hardcore Gym. My gym is a partnership and we offer many different ways to bring fitness to our customers. The three main services we offer are normal memberships ($25 a month), personal training memberships ($100 a month), and babysitting memberships ($50 a month). For the break even analysis I will need to find fixed costs and variable costs. First, my fixed costs are salaries, rent, insurance, and utilities. I estimate these costs to total $10,000 a month. Second, my variable costs are building maintenance and equipment maintenance. I estimate these costs to be on average $500 a month. We plan on having 500 members.

The first service we will offer is normal memberships. This service will take up 50% of our sales and be about (500*0.5) 250 members and take up (10,000*0.5) $5,000 of fixed costs a month and average (500*0.5) $250 a month. We will make (250*$25) $6,250 and spend about (5,000+250) $5,250 a month on costs. This means we will make a gross income of (6,250-5,250) $1,000 a month. The break even point for normal members would be 210 because 210*$25=$5,250 and that is how much the costs are.

The second service we will offer is personal trainer memberships. This service will take up 10% of our sales and be about (500*0.1) 50 members and take up (10,000*0.1) $1,000 of fixed costs a month and average (500*0.1) $50 a month. We will make (50*$100) $5,000 and spend about (1,000+50) $1,050 a month on costs. This means we will make a gross income of (5,000-1,050) $3,950 a month. The break even point for normal members would be 10.5 because 10.5*$100=$1,050and that is how much the costs are.

The third service we will offer is babysitting memberships. This service will take up 30% of our sales and be about (500*0.3) 150 members and take up (10,000*0.3) $3,000 of fixed costs a month and average (500*0.3) $150 a month. We will make (150*$50) $7,500 and spend about (3,000+150) $3,150 a month on costs. This means we will make a gross income of (7,500-3,150) $4,350 a month. The break even point for normal members would be 63 because 63*$50=$3,150 and that is how much the costs are.

This break even analysis helps me to see how much I will need to charge for each type of membership in order to make a profit. This analysis also shows me how much a price increase will increase my gross profits.

**2. From: Debra Clendenin posted May 25, 2018 8:27 PM**

My company WeHaul is a shipping/transporting business in the Baton Rouge area. Three of ours services offered include shipping a vehicle, shipping an appliance, and transporting an animal. Below is a breakeven analysis on these three services.

Fixed cost- vehicle payments, insurance, salary, rent, and utilities

Variable cost- fuel, maintenance/repairs for vehicles

Fixed expenses=$ 9,000 monthly

Service A (shipping vehicle) 50% of sales=

$1000(rate)-$400(variable cost) = $600

$4500/$600=7.5 deliveries

Services B (shipping appliance) 30% of sales=

$750(rate)-$350(variable cost) = $450

$2700/450=6 deliveries

Service C (transporting small animal) 20% of sales=

$500(rate)-$300(variable cost) = $200

$1800/$200=9 deliveries

Assuming my sales percentages are correct I would need a total of about 22.5 completed deliveries to breakeven. This analysis shows me that true calculation of miles driven is where I should focus my attention. I may be able to have flat rate packages for some customers but others will need miles driven to calculate specific cost.

**3. From: Shane Hammontree posted May 23, 2018 11:18 AM**

A Break-even analysis described in chapter 16 of our reading is a comparison of alternative cost and revenue estimates in order to determine the acceptability of each price. For this discussion board, we are asked to perform a break-even analysis for three products. The first product I chose was coffee. Most people like to have their morning or afternoon coffee, but how many do I need to sell each day to break even? First I will need to calculate my break-even revenue by obtaining my fixed cost and gross margin percentage. I will sell each cup for $2.00 (sale price) then subtract .70 cents (variable cost) like sugar and creamer which gives me $1.30 (gross margin). I then use the gross margin price $1.30 and divide that by the selling price $2.00 which equals 65% (gross margin percentage). That 65% represents each time a coffee is sold, is my gross profit. Now that we have that information, we can conduct our break even analysis. First, I must figure out what my fixed costs are to actually operate the shop. It costs me $200 a day to operate the coffee shop, divide that (fixed cost) of $200 by the gross margin percentage of 65% which equals 308 (break-even analysis). So to answer the question earlier, how many cups a day do I need to sell, 154 cups. I took the break-even analysis of 308 and divided that by $2.00 a cup. This 154 represents the number of cups I have to sell just to break even.

The next product will be for a peperoni pizza. I will sell each pizza for $10 (sale price) then subtract my variable costs like flower, meat, cheese of $5.56 which gives me $4.44 (gross margin). ). I then use the gross margin price $4.44 and divide that by the selling price $10.00 which equals 44% (gross margin percentage). That 44% represents each time a pizza is sold, is my gross profit. Now we can conduct our break even analysis by figuring out what my fixed costs are to actually operate the pizza shop. It will cost me $1,200 a day fixed cost to operate, divide that by my gross margin percentage of 44% which equals 272 (break-even analysis). Next take the break-even analysis of 272 and divided that by $10 a pizza. This 27 represents the number of pizzas I have to sell a day just to break even.

The higher the fixed cost, the higher your break-even level will be. This tool allows you to determine what prices to set on your products. You eventually want to surpass your break-even level and start making some money.

The last product will be a donut, sold for .50 cents each. The variable costs are .25 cents which gives us .25 cents gross margin. Divide the gross margin .25 by the selling price .50 which equals 50% gross margin percentage. It cost me $200 a day to (fixed cost) to operate, divide that by the gross margin percentage of 50% which equals 400 (break-even analysis). Lastly take the break-even analysis of 400 and divided that by .50cents a donut. The 800 represents the number of donuts I have to sell a day just to break even.