Marketing Analysis Toolkit: Breakeven Analysis

Harvard Business School Case 510-080

Courseware 9-510-713

This courseware was prepared by Professor Thomas Steenburgh and

Professor Jill Avery, Simmons School of Management, solely as the basis for
class discussion. Cases are not intended to serve as endorsements, sources
of primary data, or illustrations of effective or ineffective management.
Copyright 2010 President and Fellows of Harvard College. This publication
may not be digitized, photocopied, or otherwise reproduced, posted, or
transmitted, without the permission of Harvard Business School.
This toolkit is designed to accompany the Harvard Business School note, No. 9-510-080, entitled "Mark
Breakeven Analysis".

Using the Breakeven Excel Model, Table, and Graph

The prebuilt Breakeven Excel model calculates the breakeven point for you based upon the
discussed above.

There are two sections in the model: an input section and an output section. In the
to input your model assumptions, providing values for price per unit, variable costs per unit, a
associated with the marketing expenditure. You are also asked to forecast expected unit sal

The output section automatically calculates values for you -- do not enter anything into the y
they contain formulas. The output section calculates contribution margin per unit, the breake
total revenue, total costs, and total contribution margin achieved at the breakeven quantity, a
months it will take to payback the fixed cost investment.

Once you become more comfortable with running breakeven analyses, try building your own
the breakeven point.

The spreadsheet entitled Table and Graph contains a data table and a graph which help illus
represents. Both the Table and the Graph automatically populate when you enter values in t
model. Do not enter or change anything in the Table or Graph.

The Table shows you the Total Revenue, Fixed Costs, Variable Costs and the Total Costs as
quantities of units sold. The line in the Table that is marked in blue shows you the breakeven
and Total Costs are equal. All of the lines of the table that are above the blue line show you
company is not yet breaking even, where Total Revenue is less than Total Costs. All of the li
blue line show you quantities for which the company is beyond breaking even and is making
investment, where Total Revenue is more than Total Costs.

The Graph shows you the data from the Table represented in a line graph, so that you can s
fixed costs, variable costs, and total costs interact to product the breakeven point. The brea
the graph is the same one calculated by the prebuilt Excel model.
Professor Thomas Steenburgh and Professor Jill Avery (Simmons School of Management) developed t
are developed solely as the basis for class discussion and are not intended to serve as endorsements,
or illustrations of effective or ineffective management.

Copyright 2010 President and Fellows of Harvard College. To order copies or request permission to
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbs
of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitte
means --electronic, mechanical, photocopying, recording or otherwise -- without the permission of Harv
 Breakeven Analysis
Quantitative Toolkit

, No. 9-510-080, entitled "Marketing Analysis Toolkit:

point for you based upon the formulas

output section. In the input section, you need

r unit, variable costs per unit, and the fixed costs
d to forecast expected unit sales per month.

o not enter anything into the yellow cells as

ion margin per unit, the breakeven quantity, the
ed at the breakeven quantity, and the number of

analyses, try building your own Excel models to calculate

le and a graph which help illustrate what the breakeven point

ate when you enter values in the input section of the Excel

e Costs and the Total Costs associated with various

blue shows you the breakeven point, where Total Revenue
above the blue line show you quantities for which the
s than Total Costs. All of the lines that are below the
d breaking even and is making incremental profit from its

a line graph, so that you can see how total revenue,

he breakeven point. The breakeven point indicated on
l of Management) developed this toolkit. HBS Toolkits
ed to serve as endorsements, sources of primary data,

opies or request permission to reproduce materials, call

02163, or go to http://www.hbsp.harvard.edu. No part
in a spreadsheet, or transmitted in any form or by any
without the permission of Harvard Business School.
Introduction
First, try completing the sample problem below using pencil and paper. Use the mathemati
Introduction to the toolkit to solve for the answer. Then, try completing the sample probem
In the input section, enter the data contained in the sample problem. Analyze the results th
to see if they match the answer you calculated in the first step. Look at the tables and grap
your results.

Sample Problem
Larson is the brand manager for the Nintendo Wii. She sells her product to Best Buy for $1
at a retail price of $269 to consumers. Sales were going well; in 2008, Larson sold 3 million
now, sales were beginning to slow down. To get sales moving again, Larson wanted to laun
campaign targeted to senior citizens which would feature the new Wii Fit game. Larson kne
profitable, with variable costs of $100, so it seemed like she could afford to spend money a
submitted her advertising plan to her boss Tess. Tess liked the idea, but asked Larson how
product she would have to sell to breakeven on the advertising investment, and whether thi
current sales levels. What is the breakeven point? Can Larson feasibly sell this quantity if
campaign? Why or why not?

Solution
Pen and Pencil Solution
If we want to use the breakeven formula, we need to know (or make assumptions for
per unit, 2.) variable costs per unit, and 3.) fixed costs associated with the investmen

The sample problem provides us with the price per unit, which is $199. Remember t
formula is not necessarily the price at which a consumer purchases the product (i.e.
not sell directly to consumers, the price per unit received by the firm is the price at w
its distribution channel partners. In this problem, Larson sells the product to Best Bu
sells the product to consumers. The correct number to use here is the price at which

The sample problem also provides us with the variable cost per unit, which is $100.

The sample problem also provides us with the fixed cost associated with the investm

Using these three numbers, we can calculate the breakeven point using the mathem
 BEQ = $20,000,000 = 202,020
$199 - $100

So, in order to breakeven on her advertising investment, Larson needs to sell an incr
Wii.

How feasible is this? We know that Larson sold 3 million units in 2008, so she would
in 2009, which represents a 7% increase in sales year over year. This seems like a
calculate how long it will take Larson to sell 202,020 units based on the sales rate pe
Since she sold 3 million units in the full year, she sold 250,000 per month. Therefore
month to sell the incremental units she needs to breakeven. This seems like a reaso
to pay back the investment.

Prebuilt Excel Model Solution

Below is a picture of what the prebuilt model input and output sections should be for
the price per unit ($199), the price at which Larson sells the Wii to Best Buy; the vari
costs of the investment ($20 million) and the expected unit sales per month (250,000
3 million units divided by 12 months.

Input Section
Directions: In this section, you must input values to run the model. Values mu
that are boxed in blue like this: in order for the model to run. T
currently are the values that correspond to the sample problem. If you are con
cell, run your mouse over the red celltip for an explanation.

Price per unit received by firm $

Variable costs per unit $

Fixed costs $

Expected unit sales per month

Output Section
Directions: In this section, the model automatically calculates the breakeven q
calculates contribution margin per unit and total revenue, total costs, and total
quantity point. Based on your expected unit sales per month input, it calculate
will take you to reach your breakeven quantity. Remember, do not type anythi
the output section that are filled in yellow like this: as they c
like an explanation of the formula which is being calculated, run your mouse o

Contribution margin per unit $

Breakeven quantity (in units)

Total Revenue at breakeven quantity $

Total Variable Costs at breakeven quantity $

Total Fixed Costs at breakeven quantity $

 Contribution margin per unit $

Breakeven quantity (in units)

Total Revenue at breakeven quantity $

Total Variable Costs at breakeven quantity $

Total Fixed Costs at breakeven quantity $

Total Costs at breakeven quantity $

Total Profit at breakeven quantity

Months to breakeven

Professor Thomas Steenburgh and Professor Jill Avery (Simmons School of Management) developed
are developed solely as the basis for class discussion and are not intended to serve as endorsements
or illustrations of effective or ineffective management.

Copyright 2010 President and Fellows of Harvard College. To order copies or request permission to
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hb
of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmit
means --electronic, mechanical, photocopying, recording or otherwise -- without the permission of Har
 Breakeven Analysis
Quantitative Toolkit

il and paper. Use the mathematical formulas summarized in the

y completing the sample probem using the Prebuilt Excel Model.
e problem. Analyze the results that appear in the output section
step. Look at the tables and graphs that are generated to visualize

lls her product to Best Buy for $199 and Best Buy sells it
well; in 2008, Larson sold 3 million units of the Wii. But
ving again, Larson wanted to launch a $20 million advertising
he new Wii Fit game. Larson knew that her product was very
e could afford to spend money advertising the product. She
d the idea, but asked Larson how many incremental units of
ising investment, and whether this quantity was feasible, given
arson feasibly sell this quantity if she runs her advertising

o know (or make assumptions for) three pieces of data: 1.) price
sts associated with the investment.

unit, which is $199. Remember that the price that is used in the
umer purchases the product (i.e. the retail price). For firms who do
eived by the firm is the price at which the firm sells the product to
arson sells the product to Best Buy, her retailer partner, who then
r to use here is the price at which Larson sells to Best Buy.

ble cost per unit, which is $100.

cost associated with the investment, which is $20 million.

eakeven point using the mathematical formula:

ment, Larson needs to sell an incremental 202,020 units of the Nintendo

million units in 2008, so she would need to sell 3,202,020 units

ear over year. This seems like a reasonable goal. We can also
0 units based on the sales rate per month she experienced in 2008.
ld 250,000 per month. Therefore, it should take her less than one
eakeven. This seems like a reasonable amount of time in which

nd output sections should be for the solution. The inputs are

sells the Wii to Best Buy; the variable costs ($100), the fixed
ed unit sales per month (250,000), which is the 2008 sales of

ues to run the model. Values must be inputted into all cells
in order for the model to run. The values that are in the model
e sample problem. If you are confused about what to enter in each
n explanation.

$ 199.00

$ 100.00

$ 20,000,000

250,000

tically calculates the breakeven quantity for you. It also

tal revenue, total costs, and total profit at the breakeven
sales per month input, it calculates how many months it
y. Remember, do not type anything into any of the cells in
this: as they contain formulas. If you would
ing calculated, run your mouse over the red celltip.

$ 99.00

202,020

$ 40,202,020

$ 20,202,020

$ 20,000,000
 $ 99.00

202,020

$ 40,202,020

$ 20,202,020

$ 20,000,000

$ 40,202,020

$0.00

0.8

hool of Management) developed this toolkit. HBS Toolkits

ended to serve as endorsements, sources of primary data,

er copies or request permission to reproduce materials, call

MA 02163, or go to http://www.hbsp.harvard.edu. No part
sed in a spreadsheet, or transmitted in any form or by any
e -- without the permission of Harvard Business School.
Input Section
Directions: In this section, you must input values to run the model. Values must be inputte
that are boxed in blue like this: in order for the model to run. The values that ar
currently are just random numbers. If you are confused about what to enter in each cell, ru
the red celltip for an explanation.

Price per unit received by firm

Variable costs per unit

Fixed costs

Expected unit sales per month

Output Section
Directions: In this section, the model automatically calculates the breakeven quantity for yo
calculates contribution margin per unit and total revenue, total costs, and total profit at the b
quantity point. Based on your expected unit sales per month input, it calculates how many
will take you to reach your breakeven quantity. Remember, do not type anything into any o
the output section that are filled in yellow like this:
like an explanation of the formula which is being calculated, run your mouse over the red ce

Contribution margin per unit

Breakeven quantity (in units)

Total Revenue at breakeven quantity*

Total Variable Costs at breakeven quantity

Total Fixed Costs at breakeven quantity

Total Costs at breakeven quantity*

 Months to breakeven

*Remember, that at the breakeven quantity Total Revenue = Total Costs, so the firm's profit

Analyzing Your Results

Now that you have calculated your breakeven quantity and have a sense of how many mon
you to breakeven, you need to assess its feasibility. How feasible is it that the firm will be a
that quantity, given existing sales levels? How many months will it take to breakeven? Can
that long to pay back its investment?

If you find that the breakeven quantity is highly feasible and can be achieved in a reasonab
months, then you should recommend investment in the fixed cost program.

If you find that the breakeven quantity is not feasible and can not be achieved in a reasona
of months, then you should not recommend investment in the fixed cost program. It is prob
going to pay back.

Visualizing Your Results

Use the Table and Graph on the next spreadsheet to help you visualize your results.

Professor Thomas Steenburgh and Professor Jill Avery (Simmons School of Management) developed
are developed solely as the basis for class discussion and are not intended to serve as endorsements
or illustrations of effective or ineffective management.

Copyright 2010 President and Fellows of Harvard College. To order copies or request permission to
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hb
of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmit
means --electronic, mechanical, photocopying, recording or otherwise -- without the permission of Har
 Breakeven Analysis
Quantitative Toolkit

run the model. Values must be inputted into all cells

for the model to run. The values that are in the model
used about what to enter in each cell, run your mouse over

$ 5,000.00

$ 3,000.00

$ 50,000,000

4,500

calculates the breakeven quantity for you. It also

enue, total costs, and total profit at the breakeven
per month input, it calculates how many months it
member, do not type anything into any of the cells in
as they contain formulas. If you would
lculated, run your mouse over the red celltip.

$ 2,000.00

25,000

$ 125,000,000

$ 75,000,000

$ 50,000,000

$ 125,000,000
 5.6

evenue = Total Costs, so the firm's profit is zero.

tity and have a sense of how many months it will take

How feasible is it that the firm will be able to sell
y months will it take to breakeven? Can the firm wait

ible and can be achieved in a reasonable number of

the fixed cost program.

e and can not be achieved in a reasonable number

ment in the fixed cost program. It is probably not

o help you visualize your results.

ons School of Management) developed this toolkit. HBS Toolkits

not intended to serve as endorsements, sources of primary data,

To order copies or request permission to reproduce materials, call

oston, MA 02163, or go to http://www.hbsp.harvard.edu. No part
tem, used in a spreadsheet, or transmitted in any form or by any
herwise -- without the permission of Harvard Business School.
Breakeven Table
This table automatically populates based on the values you entered into the Excel model. I
Total Revenue, Fixed Costs, Variable Costs, Total Costs, and Profit of the firm at various un

Notice that at the breakeven quantity, notated by the blue bar, total revenue is equal to tota
as a result, the profit is zero. For all quantities below the breakeven quantity, total costs are
total revenue, generating a negative profit -- the firm is losing money. For all quantities abo
quantity, total costs are less than total revenue, generating a positive profit -- the firm is ma

Unit Volume Sold Total Revenue Fixed Costs Variable Costs

- $ - $ 50,000,000 $ -
5,000 $ 25,000,000 $ 50,000,000 $ 15,000,000
10,000 $ 50,000,000 $ 50,000,000 $ 30,000,000
15,000 $ 75,000,000 $ 50,000,000 $ 45,000,000
20,000 $ 100,000,000 $ 50,000,000 $ 60,000,000
25,000 $ 125,000,000 $ 50,000,000 $ 75,000,000
30,000 $ 150,000,000 $ 50,000,000 $ 90,000,000
35,000 $ 175,000,000 $ 50,000,000 $ 105,000,000
40,000 $ 200,000,000 $ 50,000,000 $ 120,000,000
45,000 $ 225,000,000 $ 50,000,000 $ 135,000,000
50,000 $ 250,000,000 $ 50,000,000 $ 150,000,000

Breakeven Graph
This graph automatically populates based on the values you entered into the Excel model.
Total Revenue and Total Costs of the firm at various unit volumes.

Notice that the breakeven quantity occurs at the point where the total revenue and total cos
intersect. For all unit quantities below the breakeven quantity, the total cost curve is above
curve, indicating that the firm is losing money. For all unit quantities above the breakeven q
total cost curve is below the total revenue curve, indicating that the firm is making money.
 $300,000,000

Dollars
$250,000,000

$200,000,000

$150,000,000

$100,000,000

$50,000,000

$0
- 0 00 00 00 00 00 00 00 00 00
00 0 0 0 0 0 0 0 0 0
5, 10, 15, 20, 25, 30, 35, 40, 45, 50,

Unit Volume

Professor Thomas Steenburgh and Professor Jill Avery (Simmons School of Management) developed
are developed solely as the basis for class discussion and are not intended to serve as endorsements
or illustrations of effective or ineffective management.

Copyright 2010 President and Fellows of Harvard College. To order copies or request permission to
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hb
of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmit
means --electronic, mechanical, photocopying, recording or otherwise -- without the permission of Har
 Breakeven Analysis
Quantitative Toolkit

ntered into the Excel model. It shows you the

Profit of the firm at various unit volumes.

total revenue is equal to total costs and,

keven quantity, total costs are greater than
money. For all quantities above the breakeven
positive profit -- the firm is making money.

Total Costs Profit

$ 50,000,000 $ (50,000,000)
$ 65,000,000 $ (40,000,000)
$ 80,000,000 $ (30,000,000)
$ 95,000,000 $ (20,000,000)
$ 110,000,000 $ (10,000,000)
$ 125,000,000 $ -
$ 140,000,000 $ 10,000,000
$ 155,000,000 $ 20,000,000
$ 170,000,000 $ 30,000,000
$ 185,000,000 $ 40,000,000
$ 200,000,000 $ 50,000,000

ntered into the Excel model. It shows you the

he total revenue and total costs curves

the total cost curve is above the total revenue
ntities above the breakeven quantity, the
at the firm is making money.
 Total
Revenue
Total Costs

00 00 00 00
0,0 5,0 0,0
4 4 5

l of Management) developed this toolkit. HBS Toolkits

ed to serve as endorsements, sources of primary data,

opies or request permission to reproduce materials, call

02163, or go to http://www.hbsp.harvard.edu. No part
in a spreadsheet, or transmitted in any form or by any
without the permission of Harvard Business School.
Introduction
Strong marketers combine creative thinking with rigorous quantitative analysis to make comp

These online quantitative toolkits were designed to help facilitate the quantitative analyses th
marketing decision making. There are five toolkits, each focusing on a particular type of qua

Situation Analysis
Breakeven Analysis
Customer Lifetime Value Analysis
Market Size and Market Share Analysis
Pricing and Profitability Analysis

Toolkit Contents
Each toolkit contains an Introduction which explains the analytical concept, explores how it
making, and shows in words, mathematical formulas, and concrete examples how to calcula
should carefully review the Introduction so that you are familiar with the analysis, how it is ca
when it is used in marketing. The Introduction is contained in the first spreadsheet within the

The second spreadsheet within each toolkit contains a Sample Problem, which guides you
concept, shows you the solution using pen and paper methods, and then shows you how to
Excel model to yield the solution.

Once you have grasped the analytical concept, you are ready to explore the
accompany each toolkit. These models are designed to do the calculations for you. Each m

In the Input Section, you will need to input various pieces of data to be analyzed.
put into each of the cells in the Input Section in order for the model to run. For ex
be asked to input the price of the product, the variable costs of the product, the fix
the acquisition cost of a customer, the total number of customer in a market, etc.
model's "assumptions" which drive the calculations and are usually found in the ca

Once all of the input values are inputted, the model is ready to go to work. Prebu
Output Section automatically calculate key components of the quantitative analy
of the output sections calculate Total Revenue, Total Costs, and Total Profits. Eac
Sections calculates the final answer; for example, the Breakeven Analysis toolkit's
breakeven quantity, the Customer Lifetime Value Analysis toolkits' model calculate
 It is important that you do not enter values into the Output Section of the model, a
formulas that run the analysis. Cells containing prebuilt formulas are colored ye
always avoid changing anything in a yellow cell.

Note: the values contained in the Excel model Input Section are random values. You should
before using the tool to solve a problem.

The Prebuilt Excel Spreadsheet Models are contained in the third spreadsheet within the too

Some of the toolkits contain Graphs and Tables which help illuminate the analytical concep
your answers in context. The Graphs and Tables automatically create themselves once data
You should avoid entering anything into the Graphs and Tables spreadsheet, as this may ove
that create the Graphs and Tables. The Graphs and Tables spreadsheets are contained in th
Excel Spreadsheet Models within the toolkit.

The final spreadsheet in each toolkit is this Toolkit Help page. You may refer to this guide if
understanding how to use the toolkit.

Using the Toolkits

Each of the Prebuilt Excel Spreadsheet Models is built in Excel, so you need to be familiar a
beginning to use the toolkits. The basic Excel operations that are needed to use the toolkits
are not familiar with these operations, you should use the Help tab in your Excel software to

File Open and Save

You can download the toolkits directly into Excel.

Important Note: All of the toolkits contain a prebuilt Excel model. Any changes you make to
once you save the file. To maintain the integrity of the prebuilt model, save the toolkit to you
are ready to run an analysis, open the toolkit file and immediately save it with another name
calculate your results.

Using Multiple Spreadsheets within a File

Each toolkit contains multiple spreadsheets within it, as outlined above. You can switch betw
clicking on the appropriate spreadsheet on the bottom left hand side of the screen.

Entering Values into Cells

In the Input Sections of the toolkits, you will be asked to enter values in various cells. These
in the model calculations.

Using Cell References and Formulas

The Excel spreadsheet models in the toolkits are prebuilt, which means you do not need to w
yourself; however, you should familiarize yourself with the formulas that are in the cells in the
so that you can create your own spreadsheet models and customize the analysis, as needed

Print
The Output Section, graphs, and tables can be printed by highlighting the desired print area.

Getting Help while in the Toolkit Models

 Each Prebuilt Excel Model features red celltip markers which contains information on what to
and/or what the formula in the cell is calculating. These can help guide you through the tool.
information, place your mouse over the red celltip located on the top right hand corner of a c

The red celltip marker looks like this (see below); run your mouse over it to see how it works

Professor Thomas Steenburgh and Professor Jill Avery (Simmons School of Management) developed t
are developed solely as the basis for class discussion and are not intended to serve as endorsements,
or illustrations of effective or ineffective management.

Copyright 2010 President and Fellows of Harvard College. To order copies or request permission to
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbs
of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitte
means --electronic, mechanical, photocopying, recording or otherwise -- without the permission of Harv
 Quantitative Toolkit
How-To Guide

ntitative analysis to make competent marketing decisions.

ate the quantitative analyses that you will use to guide your
sing on a particular type of quantitative analysis:

ytical concept, explores how it is used in marketing decision

crete examples how to calculate the answer. To begin, you
r with the analysis, how it is calculated, and how and
the first spreadsheet within the toolkit.

e Problem, which guides you through the analytical

s, and then shows you how to populate the prebuilt

to explore the Prebuilt Excel Spreadsheet Models which

e calculations for you. Each model contains two sections:

pieces of data to be analyzed. Values must be

er for the model to run. For example, you may
ble costs of the product, the fixed costs of the product,
of customer in a market, etc. These values are the
and are usually found in the case exhibits or text.

is ready to go to work. Prebuilt formulas in the

nents of the quantitative analysis. For example, some
al Costs, and Total Profits. Each of the models' Output
he Breakeven Analysis toolkit's model calculates the
nalysis toolkits' model calculates the CLV of a customer.
Output Section of the model, as this may overwrite
built formulas are colored yellow; you should

are random values. You should change these values

hird spreadsheet within the toolkit.

uminate the analytical concept and help you visualize

y create themselves once data is inputted into the Input Section.
s spreadsheet, as this may overwrite necessary formulas
preadsheets are contained in the spreadsheet after the Prebuilt

. You may refer to this guide if you are having trouble

el, so you need to be familiar and facile with Excel before

are needed to use the toolkits are as follows; if you
p tab in your Excel software to learn how to do them.

el. Any changes you make to the file are permanent

model, save the toolkit to your desktop. Then, when you
tely save it with another name so that you can

ed above. You can switch between the spreadsheets by

d side of the screen.

values in various cells. These inputs will be used

ch means you do not need to write Excel formulas

mulas that are in the cells in the Output Section
tomize the analysis, as needed.

hlighting the desired print area.

contains information on what to enter into each cell
elp guide you through the tool. To access the helpful
he top right hand corner of a cell.

use over it to see how it works.

l of Management) developed this toolkit. HBS Toolkits

ed to serve as endorsements, sources of primary data,

opies or request permission to reproduce materials, call

02163, or go to http://www.hbsp.harvard.edu. No part
in a spreadsheet, or transmitted in any form or by any
without the permission of Harvard Business School.