A break-even point is a critical business component which helps determine the volume of sales required to cover operational and fixed costs. A startup takes some time before the losses diminish despite not making a profit after it starts operations. The break-even point is when losses vanish due to increased sales revenue that covers fixed and variable expenses. Thus, managers rely on different approaches to calculate it; they identify the total sales revenue required to meet all expenses and generate profit. Increasing prices, creating an attractive brand, and eliminating fixed costs accelerate the time to break even.
Foremost, increasing prices is a way of raising sales revenue for a startup. An enterprise can increase the price of the good per unit to lower the number of items needed to break even. Matsoulis (2018) reveals that raising product or service prices is an aggressive approach due to competition and harsh economic conditions. However, it is the best method to invest in when a firm complies with market practices and possesses adequate and reliable knowledge of competitor prices. Besides, a business experiencing high-demand for its products can adjust its prices upwards without discouraging customers. Increased prices raise sales revenue per unit and accelerate the time taken to break even by meeting a significant proportion of the operational costs.
Additionally, designing an attractive brand facilitates up-sale and cross-sale practices which increase the overall revenue. A business can create product or service bundles with different price tags based on quality. As a result, customers might forego cheaper bundles and choose to subscribe to premium packages. The practice is common in digital content markets in which sellers offer standard services at a lower cost and premium services at a higher price. Matsoulis (2018) posits that online sellers offer essential services at a level which sustains the product value but holds enough offers to induce subscribers to sign up for exclusive membership. For instance, Netflix or Amazon Prime Video offer standard streaming at a lower price and high definition (HD) ones at an improved cost. Up-sale and cross-sale increases the overall revenue and reduces the time a business would require to break even.
Moreover, eliminating fixed-cost in business operations is a practical way to accelerate the time to break even. The objective can be attained by outsourcing inputs that contribute to high fixed expenditures in an enterprise; it transforms them into variable unit costs. The business might pay a higher per-unit price when outsourcing inputs with a fixed cost, but it is better off since the expenditure burden is shared with external parties. Hence, an enterprise pays for what it uses in routine operations, such as manufacturing. Besides, a startup benefits from quantity discounts used by suppliers to attract buyers and sell in large quantities. Eliminating fixed costs increases revenue and minimizes the time required to break even.
In conclusion, an enterprise can use strategies which target price, product, or cost to accelerate the break-even. Increasing the price of a product or service raises overall revenues. Thus, a business can meet the operational cost. Investing in an attractive brand increases the chances of selling premium products to clients; excellent prices help sell more products to lesser buyers. Besides, outsourcing is valuable in lowering fixed costs which contribute to total business expenditures. Thus, outsourcing, increasing prices, and creating an appealing brand raises the overall revenue of an establishment, which, in turn, lowers the time required to break even.
Reference
Matsoulis, D. (2018). Why and how to lower your break-even point. PanXpan Knowledge. Web.