How much market share can the client lose before reducing the price by 20% becomes an option?
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Can someone explain this calculation?
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Hi Ameya,
So what they're basically saying is, what is the reduced profit from cutting price by 20%?
Then, what is the equivalent amount of change in units sold that would get you the same reduction in profit (essentially saying you would reduce price to keep selling the same amount of units).
You're basically palying aroudn with different variables in a breakeven equation:
Break even quantity = Fixed costs / (Sales price per unit – Variable cost per unit)
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break even quantity= FC/(sp-VC)= 300,000/(10-4)= 50,000 units. How come it is 66.6666 units?
I think the answer should be we can reduce the units by 66,666 number as when we reach 33,333 units our profit/unit which is 10$ in Rev- 4$ in VC -3% in FC = 3$ multiplied by 33,333 =~100K in profit is equal to what we can achieve if we reduce the price i.e. 8$ in price -4$ in VC-3$ in FC =1$ profit/unit *100K units=100K in profit So we can reduce our volume by 66% and not 33%