How Do You Calculate A Suppliers Break-Even Point?
It is often said that in a negotiation, knowledge is power. One vital piece of information that will give you great knowledge is an understanding of your supplier’s break-even point. This is because once your supplier is operating at a level that is above their break-even point, any new business will only attract marginal cost and so is very profitable for the supplier. Before you are ready to analyse a supplier’s break-even point, there are a couple of concepts you need to understand; those of fixed costs and variable costs. Fixed costs, as the name implies, are costs that don’t vary with the volume of activity. For example, in a manufacturing company that makes widgets, the rent on premises will remain the same irrespective of how many widgets are produced. Similarly, in a service company, such as a travel agent, the cost of the manager remains the same no matter how many holidays are sold. Variable costs on the other hand do change with the volume of output. In making widgets, mater
