Break even analysis question?

[aa2202]

In a break even analysis is it bad that one product doesn't reach the break even point and comes out negative? For example, say you are selling two products. One product sells for $2 and the other sells for $10. The one that sells for $2 and goes negative doesn't reach break-even but the one that sells for $10 reaches way over break-even and can pay for the $2 products negative sales. The net profits still come out positive by a good amount. Now the question again is, is it fine to have one product that goes negative be compensated by another product that goes way above break even?

[kameron]

as long as you can justify the negative product as a front end retail product that in some way shape or form helped the business say by attracting customers to come to the store then while they were there looking at the 2 dollar product realized that the 10 dollar product was more what they wanted and a better deal. Then the negative sales of your 2 dollar product could be justify and considered in a sense as marketing, because it drew the customers to the store in the first place in order to help sell the $10 product. Hope this helps

[aliendavid]

Depends on what your selling too, but yes normally if it is a complimentary item then it is worth it.

Like if object A is a Remote Control and obect B is a battery. Then even if you lose money on one, you will make money on the other and 90% of the time people will buy both.

[inle]

You can consider taking your total average sales per product of all your products and work out a weightage..

If you are selling more of the profitable products and less of the not-profitable products (which also serve other marketing or business aspects), then you should be ok..
In fact, you might be better off, in terms of overall business sales..

I got a case study whereby the owner is giving away FREE stuff just to attract more customers..
His overall business grew in profits by more than 50% within 3 months even though the FREE giveaway is not making any $..

[armenh]

Giving this a different perspective, in a product and service oriented business a company might lower the profit margin of their products to become more competitive. They can compensate that through the services they would offer. Like setting up the product, installing or programming.

When you buy a car, and agree on a final set price, you are sent to the financial department. There you are given many options, like getting oil changes for $100 for 2 years. Or maybe extending your warranty. This is how many dealers make their money, same applies for any other company in a service oriented business.

[ovwilliams]

This is a great post. I think businesses seem to fail in the first year because of poor panning. I know this is a generalization but I have found that people get so excited with a new idea that they fail to plan marketing, sales, management, workforce and etc. They jump in with both feet and sink to the bottom.

Everyone is correct as long as the more profitable product is continues to carry the non-profitable product you will be fine. I have to ask, is the product is giving you a negative return do you think you could discontinue the product?