Management of Small Business
The services provided include command center activities, access controls and temporary and special event coverage in my security business. For each of the three services, the estimation of the price break-even for guarding an individual includes the overall fixed cost, the variable cost per person and the number of people guarded. The process used to achieve the price is: The formula: (Total fixed cost/ Number of People Guarded) + Variable Cost Per Person=Break-even Price If the total fixed cost, number of people guarded, and the variable cost per person for command center operations are $25,000, 5000, and $4 respectively, then, Break-even Price = ($25,000/5000) + $4 = $5 + $4 = $9 On the other hand, if the total fixed cost, number of people guarded, and the variable cost per person for access control are $28,000, 4,000, and $6 respectively, then,
Break-even Price = ($28,000/4,000) + $6
= $7 + $4
= $11
Lastly, if the total fixed cost, number of people guarded, and the variable cost per person for temporary event coverage are $64,000, 8,000, and $7 respectively, then,
Break-even Price = ($64,000/8,000) + $7
= $8 + $7
= $15
Price setting using the break-even method aims at not making any profit (Haynes, 2015). For this reason, the price adopted is the least possible and serves as a means through which the business can gain market share. Besides, using this technique can enable this business to drive out competitors and thereby increasing the output volume. Subsequently, with high production, the business can manage to lower costs. In such a scenario, the business gets the upper hand when it comes to generating profits from a price previously regarded as the break-even point. Alternatively, the business can decide to increase the price to become more profitable. However, the price cannot be too high as this will attract other players into the market leading to increased competition (Zimmerer, Scarborough, & Wilson, 2005). Thus, setting price using this technique is economical since it is the most acceptable by the buyers and the business neither loses customers nor money.
References
Haynes, W. W. (2015). Pricing Decisions in Small Business. University Press of Kentucky.
Zimmerer, T. W., Scarborough, N. M., & Wilson, D. (2005). Essentials of entrepreneurship and small business management. Pearson/Prentice Hall.
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