What is the purpose and calculation of break-even analysis in a prospect budget?

• A. Break-even customers = fixed costs ÷ (price - variable cost per customer)
• B. Break-even is not applicable in prospect budgeting
• C. Break-even customers = variable costs ÷ price
• D. Break-even is determined by total revenue without considering costs

Answer: (A)

Break-even analysis shows how many prospects you need to convert to cover all costs, so you know the minimum performance required for profitability. The calculation uses fixed costs divided by the contribution per prospect, where contribution is the price you charge minus the variable cost to serve that prospect. This tells you how much fixed cost is being absorbed by each unit of sale, and when the quantity reaches that ratio, total revenue matches total costs and profit is zero. In a prospect budget, this helps set realistic targets and reveals how pricing or cost efficiency affects the number of prospects needed to break even. If fixed costs are high or variable costs per prospect are high, you’ll need more prospects to break even; lowering price or reducing variable costs improves the break-even quantity. This approach hinges on covering both fixed and variable costs, not just revenue or variable costs alone.