How much market share can the client lose before reducing the price by 20% becomes an option?
Get Active in Our Amazing Community of Over 452,000 Peers!
Schedule mock interviews on the Meeting Board, join the latest community discussions in our Consulting Q&A and find like-minded Case Partners to connect and practice with!
Can someone explain this calculation?
Overview of answers
Upvotes
Best answer
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)
Was this answer helpful?
Content Creator
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate
1,096
Meetings
77,603
Q&A Upvotes
232
Awards
151 Reviews
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%