FINANCIALS -4.1 Break-even Analysis – (Kotler, pages 61; 586)

FINANCIALS

4.1 Break-even Analysis(Kotler, pages 61; 586)• When you will break-even• Break-even Table/Chart • Explanation of the Break-even Table/Chart

The following two pages offer an example of a break-even analysis. This should assist you in your own completion of this section.

NOTE: You do not need to use the samples below – look online and use the Break Even and Sales Forecast templates you wish to use. If you need additional guides just ask.

NOTE: For Annual break-even analysis – ensure you continue your analysis until your profit is 0 or positive. If you end a year with a negative income – that must be carried over to the next year and added to Fixed Costs – thus your break-even point will be further into the future. (Someone must pay for debts owed!) If you conduct a Monthly Break-Even – then you may provide the number of months until break even. This will correspond to your Sales Estimates.

EXAMPLE: 4.1 Break-even Analysis

First year sales revenue for XXX is estimated to be $48,000,000. The average sales price is $100 per unit with the variable expense per unit at $75. This results in a contribution margin of $25 per unit. The sales volume in the first year is estimated to be 480,000 units. Estimated fixed costs for the first year are $20,000,000. Using the contribution margin method, estimated losses in the first year will be $(8,000,000). (Note: this information is for internal use only.)

YEAR 1TOTAL PER UNITSales (480,000 items) $48,000,000 $100 Less variable expenses $36,000,000 $75

Contribution Margin $12,000,000 $25 Less fixed expenses $20,000,000

Net operating income ($8,000,000) 

YEAR 2TOTAL PER UNITSales (1,200,000 items) $120,000,000 $100 Less variable expenses $90,000,000 $75

Contribution Margin $30,000,000 $25 Less fixed expenses $28,000,000

Net operating income $2,000,000 

At this rate, break even will be reached when sales reach 1,120,000 units: 28,000,000 / $100-$75 = 1,120,000 units. This is estimated to take place in the second year. Break-even analysis assumes per-unit wholesale revenue will remain at $100 average. Variable costs are $75 per unit.

BREAK EVENTOTAL PER UNITSales (1,1200,000 items) $11,200,000 $100 Less variable expenses $84,000,000 $75

Contribution Margin $28,000,000 $25 Less fixed expenses $28,000,000

Net operating income $0

4.2 Sales Forecast: lst year by month; 2nd and 3rd years by quarter(Kotler, pages 584-586)• $ Sales forecasted and timing – include charts showing the following: Remember that some products have sales cycles – and whether you are planning for any growth in the market or increased promotions.

Year 1 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

 

Year 2 1st Q 2nd Q 3rd Q 4th Q  Year 3 1st Q 2nd Q 3rd Q 4th Q

 

• Risks – this is a CRITICAL PART OF ANY MARKETING PLAN – so be sure to give this topic ample attention.

• Most important components of sales performance – this is a CRITICAL PART OF ANY MARKETING PLAN – so be sure to give this topic ample attention.

4.3 Fixed Expenses

List the Fixed Expenses estimated for the Product. Consider if these are changing in the first 3 years. While actual costs are hard to find – your goal is to list the items that are the most likely fixed expenses – and provide a rough estimate that sounds logical for the product.

5.0 CONTROLS• How will you monitor expenses/revenue? Identify what methods/reports and how often?• How will you assess marketing effectiveness? • How will you assess changes in the market environment?

5.2 Marketing OrganizationRoles and Relationships in Your Marketing Functions (who will be responsible and who will implement this Brand Extension Marketing Plan?)

This strategic plan is designed to give management information so decisions on investment can be made – and – to guide departments on what they will need to do to make detailed operating plans. Think about promotions, distribution and any other functions that need to be done to carry out this plan – who will do it?5.3 Contingency Planning• Identify risks in this plan strategy• How you will monitor the risks?• How you will adapt to adversity and changes? What options will you have?