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How do you find the breakeven point in price?

break-even analysis
New answer on Sep 01, 2023
3 Answers
2.0 k Views
Sasha asked on Sep 07, 2019

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Vlad
Expert
replied on Sep 07, 2019
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

BE(0) = (Price - Variable costs)*Qty - Fixed costs

So you need to plug in VC, FC, and quantity of units sold.

Best

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Clara
Expert
Content Creator
replied on Sep 01, 2023
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Precisely for the high amount of questions (1) asked by my coachees and students and (2) present in this Q&A, I created the “Economic and Financial concepts for MBB interviews”, recently published in PrepLounge’s shop (https://www.preplounge.com/en/shop/prep-guide/economic_and_financial_concepts_for_mbb_interviews).

After +5 years of candidate coaching and university teaching, and after having seen hundreds of cases, I realized that the economic-related knowledge needed to master case interviews is not much, and not complex. However, you need to know where to focus! Hence, I created the guide that I wish I could have had, summarizing the most important economic and financial concepts needed to solve consulting cases, combining key concepts theorical reviews and a hands-on methodology with examples and ad-hoc practice cases.

It focuses on 4 core topics, divided in chapters (each of them ranked in scale of importance, to help you maximize your time in short preparations):

  • Economic concepts: Profitability equation, Break even, Valuation methods (economic, market and asset), Payback period, NPV and IRR, + 3 practice cases to put it all together in a practical way. 
  • Financial concepts: Balance sheet, Income statement/P&L and Performance ratios (based on sales and based on investment), +1 practice case
  • Market structure & pricing: Market types, Perfect competition markets (demand and supply), Willingness to pay, Pricing approaches, Market segmentation and Price elasticity of demand, +1 practice case
  • Marketing and Customer Acquisition: Sales funnel, Key marketing metrics (CAC and CLV) and Churn, +1 practice case

Feel free to PM me for disccount codes for the guide, and I hope it helps you rock your interviews! 

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Anonymous replied on Sep 07, 2019

First, you take the total fixed cost and divide it by the number of units to calculate the required unit margin. Then, you add that required unit margin to the variable cost (per unit cost), which gives you the required price.

However, in case interviews you are more likely to get a question around finding the breakeven quantity rather than the breakeven price.

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