By Dexter Webster, CEO, dTc Advisory
The BE formula can be written as: BEU = FC/(USP – VC).
- FC = $500; the monthly fee for the service
- VC = $10; includes all costs per unit to include: selling, production, fulfillment, fees & etc
- USP = $30; the price of the unit (service/product)
- BEU = Number of units to be sold in order to recover all costs
- For this example, this is a monthly calculation based on the information stated above
Now, let’s work through the example. Using BEU = FC/(USP-VC) by plugging in the values as: BEU = 500/(30-10) = 500/20 = 25. In order to pay for the $500 a month service, you must sell 25 units monthly at $30 price per unit & $10 variable cost per unit. We can check the work by laying out the numbers.
- FC = $500
- VC = $10 * 25 = $250
- Total Cost = FC + VC = $500 + $250 = $750
- Revenue = $30 * 25 = $750
- BE = Revenue – Costs = $750 – $750 = 0
Hopefully, this information will help you assess the value of a new product or service pitched to help your business grow. We are available to help you through this process. Contact Us Today! http://bit.ly/dTcContactUs