Breal Even Pricing point is at which cost is equal to revenue.

It is a common tool used by many companies to set the pricing strategy of their
portfolio of products. The company can choose to set the price which is below the
break-even point. At the time of break even, the companies earn revenue but would
not make any profit
Achieving economies of scale is one more objective of break-even point.
According to Mr. Shah case, through a small market survey, he realized that there
was a huge need for medicine and that too in affordable price and Indians didn’t
want brand, they just want to get fulfillment of their purpose.
Later on, he found that Generic drugs are identical to branded or patented drugs,
and have the same effects, but cost much less. You can easily save 50-70% on
medicines by choosing generic substitutes.
The commission on Generic Drugs were very high which gave him more room to play the
pricing game. His strategy of generic drugs and that too on discount work and
footfalls increased, after which he also started selling patented drugs and
equipment’s on discounts.
The minimum price he should set despite giving discount it that his costs i.e.,
fixed cost and variable cost are covered so that there is no loss. The minimum
price for patented drugs and equipment’s must be set that all the loss occurred in
this due to discount is covered in commission earned on selling generic medicines.
For suppose, if he earns 30% on generic drugs after giving discount on them and the
fixed cost and is 5% and variable cost is 5% then he must sell patented drugs and
equipment’s on 20% discount only not more than that as the loss occurred on selling
patented drugs and equipment’s on discount will be covered on profit earn on
generic drugs.
He must also consider fixed cost and variable cost while setting minimum price as
it must cover all expenses and loss due to discounts.
Calculation of break even point by Mr. Shah can be based on on sales or the number
of units.
• Break-even point as per units
Break-Even point (Units)= Fixed Costs ÷ (Revenue per Unit – Variable Cost per
Unit).
• Break-even point based on sales
Break-even point= Fixed Costs ÷ Contribution Margin