fundamentals of estimating revenue.
revenues generated are the total revenue: unit price times quantity sold.
total revenue is the total amount of money received from the sale of the
product. tr= p x q
estimating cost, volume, and profit relationships
a. the importance of controlling costs.
as described in the marketing newsnet box, paying attention to costs is a key
ingredient for success.
three important cost definitions found in figure 13-6 are the following:
1. total cost is the total expense incurred by a firm in producing and
marketing the product.
2. fixed cost is the sum of the expense of the firm that are stable and do not
change with the quantity of product that is produced and sold.
3. variable cost is the sum of the expenses of the firm that vary directly with
the quantity of product that is produced and sold.
A. break-even analysis.
the technique that analyzes the relationship between total revenue and total cost to
determine profitability at various levels of output.
c. calculating a break-even point.
the break-even point is the quantity at which total revenue and total cost are equal
and beyond which profit occurs. break-even analysis is most frequently used to
study the impact of changes in price, fixed cost, and variable cost on profit.
the break-even point is calculated as follows:
break-even = fixed cost
point unit selling price - unit variable cost
V. step 4: selecting an approximate price level
four common bases for identifying an approximate price level are: (1) demand, (2)
cost, (3) profit, and (4) competition.
a. demand-oriented approaches
approaches for finding a price level weigh factors underlying expected customer
tastes most heavily.
1. skimming pricing involves setting the highest initial price
that customers really desiring the product are willing to pay. as the
demand for these customers is satisfied, the firm lowers the price to attract
another, more price-sensitive segment. skimming pricing is an effective
strategy when: a. enough prospective customers are willing to buy the