What is Break-Even Pricing?
Break-Even Pricing is a strategy where the price of the product is kept at a limit where it will make zero profit i.e. it covers the cost of both acquiring and owning it. It is thus a point where cost is equal to the revenue.
It is commonly used by many firms to decide the strategy of pricing for their products. It is usually calculated by the management to undertake rational decisions about the increase in production or putting a check on costs. The primary motive behind this is to raise its market share and not profit-making. At times the company sets the price lower than the break-even point to start earning revenues without looking at profits. This helps the companies to accept the lowest price which is acceptable. It is calculated as follows:
Break Even Price=(Total Fixed Cost/Production Unit Volume)+Variable Cost per Unit