Determining the Break-Even Point of Profit for a Campus Service

In this activity students will:

• Conceptualize a service for delivery on campus
• Identify fixed and variable costs
• Estimate demand at an established price
• Identify the price and sales point at which the activity will show a profit
• Analyze how changes in costs, price and demand influence the break-even point

This activity is appropriate for any class that has a unit on break-even analysis, profit analysis, pricing, etc. Typical use could be in the principles of marketing course, in the chapter covering pricing. Other chapters/topics that might also be appropriate include the business planning unit. The students will be assigned this activity as homework for the next class.

Students are divided into small teams, usually no more than 3 people; if the class is small, this could easily be an individual assignment, but I find when I ask them to conceptualize a service (rather than selling a product) it provides greater challenge in determining fixed and variable costs. This works well when it is assigned at the beginning of the unit discussion, perhaps even before the lecture has commenced.

Students are given the situation scenario and asked to complete the assignment by the next class session, and bring their written analysis to class. A discussion at the conclusion of the unit class lecture has proven to be interesting and insightful. Often, the teams discover they have to sell considerably more than their estimated demand before they can turn a profit. Often they think this will be much easier than it may be, because they find many "hidden" costs in delivering a service. Student Handout for Break Even Analsysis (Microsoft Word 27kB Aug9 10)

Students find this an interesting assignment, and are often quite creative when they brainstorm service ideas. Students have used a concierge laundry for the dorms, as well as a rental interview suit bank service. They often indicate there have been heated discussions when it comes to determining the price they set.

The other area that plays into the success of this concept, which the student teams are not assigned, is how price will affect demand. If you want the assignment to include this, then the student teams might need to do some additional research of potential customers—and will need some additional time to complete the project.

General questions that can be used (and revised to specific instances):

• What service have you conceptualized?
• Why do you think this service is needed/ has a demand on campus?
• What are the fixed and variable expenses?
• What price have you set for the service, and why?
• What is your predicted demand/sales goal?
• What is the breakeven point?
• Did you make adjustments to price, cost, or both?
• What other facts did you address in the process?

Merlot Link

Break Even Calculator Website